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What is the primary basis for a creditor's confidence in a debtor's ability to fulfill their obligation?
What is the primary basis for a creditor's confidence in a debtor's ability to fulfill their obligation?
Which of the following best defines 'credit'?
Which of the following best defines 'credit'?
What is a key component of a valid credit agreement?
What is a key component of a valid credit agreement?
Which type of credit constitutes about 34% of total loans granted by commercial banks?
Which type of credit constitutes about 34% of total loans granted by commercial banks?
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What does 'merchandise form of credit' refer to?
What does 'merchandise form of credit' refer to?
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In credit information assessment, which document is relevant for assessing an individual’s credit rating?
In credit information assessment, which document is relevant for assessing an individual’s credit rating?
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What must exist legally to make a credit agreement valid?
What must exist legally to make a credit agreement valid?
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Which of the following is NOT considered a foundation of credit?
Which of the following is NOT considered a foundation of credit?
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Who primarily benefited from the privilege of doing business in the galleon trade?
Who primarily benefited from the privilege of doing business in the galleon trade?
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What recommendation did the Commission make regarding the currency system in 1947?
What recommendation did the Commission make regarding the currency system in 1947?
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What necessity arose from the findings of the Joint Philippine-American Finance Commission?
What necessity arose from the findings of the Joint Philippine-American Finance Commission?
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Who was the first governor of the Central Bank of the Philippines?
Who was the first governor of the Central Bank of the Philippines?
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What was one of the main focuses of the American government's agricultural policies during their administration?
What was one of the main focuses of the American government's agricultural policies during their administration?
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What was the Rural Credit Law enacted to support?
What was the Rural Credit Law enacted to support?
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What were the fundamental goals of the monetary policies established by the Central Bank of the Philippines?
What were the fundamental goals of the monetary policies established by the Central Bank of the Philippines?
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What was the primary purpose of the obras pias in the Philippines?
What was the primary purpose of the obras pias in the Philippines?
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What characterizes a credit contract as a bi-partite contract?
What characterizes a credit contract as a bi-partite contract?
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What does the fiduciary element in a credit contract refer to?
What does the fiduciary element in a credit contract refer to?
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Which of the following is NOT considered an advantage of using credit?
Which of the following is NOT considered an advantage of using credit?
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How does credit contribute to economic opportunities?
How does credit contribute to economic opportunities?
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What personal factors influence the perfection of a credit contract?
What personal factors influence the perfection of a credit contract?
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Which disadvantage of using credit relates to behavior in financial markets?
Which disadvantage of using credit relates to behavior in financial markets?
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In what way does credit expand the purchasing power of individuals?
In what way does credit expand the purchasing power of individuals?
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What is the primary effect of credit on various sectors of the economy?
What is the primary effect of credit on various sectors of the economy?
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What kind of loans are agreed without a definite maturity period that can be called in by the bank at any time?
What kind of loans are agreed without a definite maturity period that can be called in by the bank at any time?
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What characterizes a time loan?
What characterizes a time loan?
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Which type of loan is typically secured and requires collateral?
Which type of loan is typically secured and requires collateral?
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What is the primary difference between public credit and private credit?
What is the primary difference between public credit and private credit?
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What might happen if a borrower defaults on a secured loan?
What might happen if a borrower defaults on a secured loan?
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Which characteristic is typical of a character loan?
Which characteristic is typical of a character loan?
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Which sector do commercial banks primarily provide credit to?
Which sector do commercial banks primarily provide credit to?
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What does the term 'lien' refer to in the context of loans?
What does the term 'lien' refer to in the context of loans?
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What is the primary function of a commercial paper in relation to banks?
What is the primary function of a commercial paper in relation to banks?
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What does rediscounting primarily enable banks to address?
What does rediscounting primarily enable banks to address?
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In a mortgage contract, which party is referred to as the mortgagor?
In a mortgage contract, which party is referred to as the mortgagor?
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Which of the following best describes secured credit?
Which of the following best describes secured credit?
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What is the main risk factor in secured credit?
What is the main risk factor in secured credit?
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Which type of credit assures payment without specific assets being pledged?
Which type of credit assures payment without specific assets being pledged?
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How does the Central Bank aid commercial banks like in the case of rediscounting?
How does the Central Bank aid commercial banks like in the case of rediscounting?
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What does the borrower’s willingness to pay depend on in unsecured credit?
What does the borrower’s willingness to pay depend on in unsecured credit?
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Study Notes
Credit
- Credit is the ability to obtain something of value in exchange for a promise to pay a specific amount of money.
- It creates obligations for the debtor and rights for the creditor.
- The debtor promises to pay the creditor a specific amount of money at a future time or on demand.
Foundations of Credit
- Confidence: The creditor must trust the debtor's willingness and capacity to pay.
- Proper Facilities: Legal facilities must exist to make the credit agreement valid.
- These facilities include credit information and credit documents..
Types of Credit
- Secured Credit: Credit backed by a specific asset pledged to guarantee payment. Most loans granted by commercial banks are secured.
- Unsecured Credit: Credit granted without collateral, based on the debtor's ability and willingness to repay.
The Greater the Test, the Greater the Capacity
- The more rigorous the assessment of a borrower's creditworthiness, the greater the bank's confidence in their ability to repay.
Emergence
- Economy: The system of trade and industry through which wealth is created.
- Private Sector: Individuals, partnerships, corporations, and other private institutions.
- Public Credit: Grants of credit to government entities (national, provincial, municipal).
- Private Credit: Grants of credit to non-government entities.
The Role of Banks
- Banks are the primary source of credit for individuals, businesses, and the government.
- Commercial banks are the main source of short-term credit for businesses.
- They play a crucial role in facilitating the flow of money in the economy.
Rediscounted Loans
- The BSP offers a standing credit facility that allows banks to refinance loans by rediscounting them with the Central Bank.
- Rediscounted loans help banks meet temporary liquidity needs.
- The BSP profits from the difference between the interest paid to depositors and the interest received from borrowers.
The Central Bank of the Philippines (CBP)
- Established in 1949 to implement a managed currency system.
- Aims to improve production, employment, and quality of life of Filipinos, especially in rural areas.
The Basic Elements of Credit
- Fiduciary Money: The issuance of money based on trust, allowing individuals to buy goods and services even without cash.
Advantages of Using Credit
- Increased Wealth: Credit facilities increase wealth by making funds available for productive purposes.
- Convenience: Credit saves time and expense by providing easier ways to complete transactions.
- Expanded Purchasing Power: Credit increases purchasing power for individuals and businesses.
- Material Well-being: Credit enables immediate consumption of goods, contributing to improved material well-being.
- Economic Growth: Credit expands economic opportunities through education, job training, and new industries.
- Convenience for Consumers: Credit makes buying more convenient for consumers.
Disadvantages of Using Credit
- Speculation: Credit can encourage risky investments and speculation.
- Risk for Creditors: Creditors prefer cash rather than accepting properties or assets as collateral.
Types of Loans Granted by Banks
- Demand or Callable Loans: Loans without a definite maturity date, payable on demand by the bank.
- Time Loans: Loans with specific maturity dates, including short-term, medium-term, and long-term loans.
Character Loans and Collateralized Loans
- Character Loans: Short-term loans based on the borrower's creditworthiness.
- Collateralized Loans: Secured loans backed by collateral, like real estate titles.
Mortgage Contract
- A debt instrument secured by a specific real estate property, requiring predetermined payments.
- Mortgagor: The borrower who pledges the property.
- Mortgagee: The lender, typically a bank.
Risk in Credit
- Ability to Pay: The debtor’s ability to pay their obligations on time is determined by their assets and financial situation.
- Willingness to Pay: This refers to the debtor's commitment to fulfill their financial obligations.
- Maturity Date: The future date when the obligation must be settled.
Foreclosure
- The process of enforcing a lien on a property by selling it at auction to recover the loan amount and expenses.
Lien
- A legal right for a creditor to sell the collateral property of a debtor who fails to meet their loan obligations.
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Description
Test your knowledge on the foundations of credit, including the definitions, types, and importance of credit in financial transactions. This quiz covers key elements such as secured and unsecured credit, along with the factors that influence creditworthiness. Challenge yourself to understand the intricacies of credit agreements.
