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Questions and Answers
A bank will charge a recurring fee for a bank guarantee credit.
A bank will charge a recurring fee for a bank guarantee credit.
False
If a buyer fails to make a payment, the bank is obliged to cover the payment amount.
If a buyer fails to make a payment, the bank is obliged to cover the payment amount.
True
The accounts pledged for a loan must be of poor quality for the loan-to-value percentage to be high.
The accounts pledged for a loan must be of poor quality for the loan-to-value percentage to be high.
False
Factoring involves selling accounts receivable for full value.
Factoring involves selling accounts receivable for full value.
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Corporate bonds can only be issued by companies with a short track record of financial success.
Corporate bonds can only be issued by companies with a short track record of financial success.
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A letter of credit guarantees that a seller will receive payment from a buyer.
A letter of credit guarantees that a seller will receive payment from a buyer.
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The lender may require the borrower to sign an agreement regarding collections on the accounts pledged.
The lender may require the borrower to sign an agreement regarding collections on the accounts pledged.
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The ownership of promissory notes is retained by the original owners when factoring occurs.
The ownership of promissory notes is retained by the original owners when factoring occurs.
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Supplier's credit in the buy-and-sell business can have terms of up to 120 days.
Supplier's credit in the buy-and-sell business can have terms of up to 120 days.
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A line of credit allows a borrower to withdraw the full amount of the loan at once.
A line of credit allows a borrower to withdraw the full amount of the loan at once.
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Packing credit advances are specifically for financing the acquisition of raw materials.
Packing credit advances are specifically for financing the acquisition of raw materials.
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Treasury bills are long-term debt securities with a maturity exceeding one year.
Treasury bills are long-term debt securities with a maturity exceeding one year.
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The interest on a time or term loan is calculated only at the end of the loan period.
The interest on a time or term loan is calculated only at the end of the loan period.
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In the Philippines, Treasury bills are issued at a premium above their face value.
In the Philippines, Treasury bills are issued at a premium above their face value.
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The total amount of a packing credit is released to the exporter after loan approval.
The total amount of a packing credit is released to the exporter after loan approval.
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A line of credit is guaranteed funding regardless of the availability of funds.
A line of credit is guaranteed funding regardless of the availability of funds.
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An Original Certificate of Title (OCT) is issued when the land has had previous titles.
An Original Certificate of Title (OCT) is issued when the land has had previous titles.
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Consulting with a competent attorney is advised before closing a land purchase.
Consulting with a competent attorney is advised before closing a land purchase.
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A TCT is always issued regardless of the method of transfer.
A TCT is always issued regardless of the method of transfer.
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The Land Registration Authority (LRA) carries out all its work independently without regional directors.
The Land Registration Authority (LRA) carries out all its work independently without regional directors.
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The purpose of the Land Registration Authority (LRA) is to issue land title decrees and certificates.
The purpose of the Land Registration Authority (LRA) is to issue land title decrees and certificates.
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Fake titles can easily be identified without specific guidelines.
Fake titles can easily be identified without specific guidelines.
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All subsequent transfers of land cancel the previous OCT and issue a TCT.
All subsequent transfers of land cancel the previous OCT and issue a TCT.
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Local investors do not need to register their corporations with the SEC in the Philippines.
Local investors do not need to register their corporations with the SEC in the Philippines.
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A promissory note is also known as a trust receipt.
A promissory note is also known as a trust receipt.
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In a trust receipt transaction, the seller is referred to as the 'entrustee'.
In a trust receipt transaction, the seller is referred to as the 'entrustee'.
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A deed of conditional sale allows the seller to retain ownership while transferring possession of the goods.
A deed of conditional sale allows the seller to retain ownership while transferring possession of the goods.
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The rate in a promissory note changes if the government increases the interest structure.
The rate in a promissory note changes if the government increases the interest structure.
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Trust receipts can serve as credit instruments if used in a credit transaction.
Trust receipts can serve as credit instruments if used in a credit transaction.
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Many promissory notes are intentionally simple and lack detailed provisions.
Many promissory notes are intentionally simple and lack detailed provisions.
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A pawnshop's pledge document does not contain a promissory note.
A pawnshop's pledge document does not contain a promissory note.
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Trust receipts are governed by P.D. 115.
Trust receipts are governed by P.D. 115.
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The dealer has full ownership of the cosmetic products immediately after receiving them.
The dealer has full ownership of the cosmetic products immediately after receiving them.
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Repossession occurs when the seller takes back merchandise due to non-payment.
Repossession occurs when the seller takes back merchandise due to non-payment.
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A warehouse receipt is considered a credit instrument.
A warehouse receipt is considered a credit instrument.
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In the case of a fortuitous event, the owner of the property bears the loss.
In the case of a fortuitous event, the owner of the property bears the loss.
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The proceeds from the sale of cosmetic products must be kept by the dealer.
The proceeds from the sale of cosmetic products must be kept by the dealer.
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A trust receipt indicates that there is an immediate transfer of ownership from the seller to the dealer.
A trust receipt indicates that there is an immediate transfer of ownership from the seller to the dealer.
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The term 'fortuitous event' refers to events that occur randomly or by chance.
The term 'fortuitous event' refers to events that occur randomly or by chance.
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Cosmetic companies can be held criminally liable for not collecting on unpaid installments.
Cosmetic companies can be held criminally liable for not collecting on unpaid installments.
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Study Notes
Suppliers' Credit
- Suppliers provide credit to businesses in the "buy-and-sell" industry.
- Terms can range from 30 to 120 days.
- Credit is typically provided in the form of raw materials, finished goods, or merchandise.
Line of Credit
- A line of credit enables a business to access short-term credit from a bank, subject to availability of funds.
- It is different from time or term loans in several ways:
- Loan release: In a line of credit, only a portion or the full approved amount can be withdrawn, unlike time loans where the entire amount is released upfront.
- Interest calculation: In a time loan, interest is calculated on the full amount for the entire term. In a line of credit, it's calculated based on the actual amount withdrawn.
- Commitment fee: Banks charge a one-time fee for a line of credit regardless of whether the loan is fully, partially, or not used.
Packing Credit Advances
- Credit extended by banks to exporters to fund the manufacturing of goods for export.
- Involves financial assistance for procuring raw materials, processing them into finished goods, and preparing them for export.
Treasury Bills (T-Bills)
- Short-term debt securities issued by the Philippine government to raise funds.
- Peso-denominated and unsecured.
- Offer fixed-income returns with predetermined interest rates.
- Typically mature within a year and are issued at a discounted price.
Bank Guarantee Credit
- A bank guarantees the payment of a buyer's obligations to a seller.
- Used to secure transactions like letters of credit (L/Cs).
- The bank assumes the responsibility of covering any shortfall in payment by the buyer.
Promissory Note
- A credit instrument, often called a P/N or pronote, that represents a written promise to pay a debt.
- Can be a separate document or incorporated into sales invoices, delivery receipts, or pledge documents (like in pawnshops).
- Promissory notes are often detailed with specific provisions to avoid legal disputes.
Trust Receipt
- Not a credit instrument in itself, but becomes one when used in a credit transaction.
- The seller (entruster) gives the buyer (entrustee) possession of goods, but not ownership.
- The buyer holds these goods in trust to sell them.
- Proceeds from sales must be remitted immediately to the seller to avoid violating the trust agreement.
- Failure to comply with trust receipt terms may lead to criminal liability.
Deed of Conditional Sale
- Used in selling appliances on credit.
- Transfers possession of the appliance to the buyer but not ownership.
- The seller retains the right to repossess the appliance in case of non-payment.
- The seller is responsible for losses incurred due to fortuitous events.
Warehouse Receipt
- Issued by a registered warehouse to provide evidence of deposit.
- Not a credit instrument.
- Used in deposit transactions (like a farmer depositing palay in a warehouse).
Accounts Receivables Financing
- A method of financing where a business sells its receivables (promissory notes) to a finance company.
- Finance companies purchase receivables at a discount.
- The discount represents the gross profit of the finance company.
- Both ownership and possession of the promissory notes are transferred to the buyer.
Factoring
- A type of accounts receivable financing where the finance company purchases the accounts receivable.
- Similar to accounts receivable financing, the finance company typically purchases the receivables at a discount.
Mortgage
- A type of loan secured by real estate.
- The borrower (mortgagor) provides the lender (mortgagee) with a legal claim on the property as collateral.
- The borrower retains possession of the property until the loan is repaid.
Title Verification
- Important to verify land titles before buying a property.
- Methods of verification:
- Checking the "Memorandum of Encumbrances" section of the Owner's Duplicate Certificate.
- Consulting a lawyer for a due diligence investigation.
- Checking with the Land Registration Authority (LRA).
- Checking with the Securities and Exchange Commission (SEC) for companies (for authenticity and legality).
Spotting Fake Titles
- Guidelines to help identify fake land titles:
- Check if the party responsible for goods in transit is listed (e.g., mortgage documents).
- Look for provisions related to successor-in-interest and holder-in-due-course.
- Verify the title's authenticity and existence through the LRA.
Government Agencies
- Land Registration Authority (LRA): Responsible for land titling.
- Securities and Exchange Commission (SEC): Responsible for company registration.
Other Notable Points
- Successor-in-interest and holder-in-due-course provisions: These provisions are crucial when dealing with promissory notes and mortgages.
- Government Interest Rate Changes: In cases where the government adjusts interest rates, the rate incorporated into the pronote will change accordingly.
- Deed of Conditional Sale: This document serves as a credit instrument for a conditional sale, granting the seller the right to repossess the item if the buyer fails to pay.
- Warehouse Receipt: This is an important document for goods stored in a warehouse, indicating ownership and custody of the goods.
- Trust Receipts: A trust receipt gives possession, but not ownership, of goods for the entrustee to sell, with proceeds typically remitted to the entruster.
- Fortuitous Events: In a deed of conditional sale, the seller bears the loss due to unforeseen events, not the buyer.
- Accounts Receivable: Accounts receivables financing provides companies with immediate cash flow by selling their invoices to finance companies.
- Factoring: Similar to accounts receivables financing, factoring involves the sale of receivables by businesses but often with more comprehensive services.
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Description
This quiz explores various credit systems utilized in business, including supplier credit, lines of credit, and packing credit advances. Understand the terms, benefits, and calculations associated with each type of credit to enhance your financial knowledge and decision-making skills.
