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Questions and Answers
What minimizes the creditor's risk when a loan is provided?
What is a fundamental basis of credit?
Which law was enacted to support agricultural cooperatives?
Which institution functioned as the de facto Central Bank of the Philippines until 1949?
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Which factor is essential in determining a borrower's ability to pay their debt?
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In what ways can credit arise?
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What role does credit play in economic opportunities?
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What is NOT a characteristic of a credit contract?
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Which of the following is NOT a characteristic of credit?
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What items may be considered collateral in a pawn transaction?
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A promise to pay must include which of the following elements?
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Who are typically considered the participants in pawnshop transactions?
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Which aspect of a promise to pay may specify a future date for loan maturity?
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What is a key element in the establishment of credit between debtor and creditor?
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In what form do pawnshops typically return collateral to borrowers?
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How is credit characterized in terms of its ability to change?
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What is required for a commercial bank to approve a loan?
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What does the variable 'I' represent in the compound interest formula?
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Which of the following statements about the Lending Act is true?
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In the formula for simple interest, what does the variable 't' represent?
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Which of the following statements is false regarding commercial banks?
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What is the formula to calculate compound interest?
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In the compound interest formula, what does 'm' signify?
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Which of the following items is NOT included in the total amount financed under the Lending Act?
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What motivated the establishment of a central bank in the Philippines in 1949?
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What was the main characteristic of the Galleon Trade?
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Which elements are considered fundamental to the concept of credit?
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Who was the first governor of the Central Bank of the Philippines?
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What significant recommendation did the Joint Philippine-American Finance Commission make in 1947?
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Which of the following was NOT a participant in the Galleon Trade?
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What role did Obras Pias serve in the Philippines?
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During which historical period was the Galleon Trade primarily active?
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What is the primary purpose of agricultural credit?
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What type of loan does not have a definite maturity and can be called by the bank at any time?
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Which credit classification is intended specifically for purchasing fixed assets?
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How long is the credit period mentioned for loan renewals?
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What is REDISCOUNTING in banking?
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What guarantees payment to the exporter in an export credit transaction?
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Which type of loan is likely to require collateral for payments extending over one year?
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Who are the primary creditors of agricultural loans?
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Study Notes
Spanish Rule and Galleon Trade
- The early years of Spanish rule in the Philippines saw the encouragement of free trade, goods from the Far East were exported to America through Manila and Acapulco.
- The Manila-Acapulco Trade, also known as the Galleon Trade, was a product of mercantilism, and it was carried by transpacific galleons.
- The Galleon Trade was a government monopoly, with privileges being granted to the governor-general, religious officials, and soldiers.
Obras Pias
- A charity foundation by laymen, used for charitable and religious activities.
- Run by friars, they were the forerunner of banking institutions in the Philippines.
- Funds were donated by wealthy citizens and managed by religious orders.
American Era
- The American government placed priority on agricultural development.
- Americans introduced a better banking and credit system to boost economic development, especially in rural areas.
Rural Credit Law
- Enacted in 1915, it complemented agricultural cooperatives and credit associations.
Philippine National Bank
- Established in 1916, it provided long-term loans to agriculture and industry.
- It served as the de facto Central Bank of the Philippines until 1949.
Central Bank of the Philippines
- The Joint Philippine-American Finance Commission, chaired by Mr. Cuaderno, recommended the shift from the dollar exchange standard to a managed currency system.
- This led to the establishment of the Central Bank of the Philippines in 1949.
- The Central Bank of the Philippines (CBP) was inaugurated with Miguel Cuaderno, Sr. as the first governor.
Credit
- The foundation of credit lies in confidence.
- Credit has two primary aspects:
- Confidence in the borrower’s ability to repay and managing their affairs.
- Confidence in the borrower’s integrity.
Characteristics of a Credit Contract
- It's a bi-partite contract involving a debtor and a creditor.
- It is elastic, meaning it can be increased or decreased at the creditor’s discretion.
- It is built on trust and faith, the creditor must believe in the debtor’s ability and willingness to repay.
Types of Credit Based on Purpose
- Investment credit: For purchasing land, buildings, and equipment for business use.
- Agricultural credit: For acquiring fertilizers, pesticides, seedlings, and farm improvements.
- Export credit: Used for financing international trade, often with a “Letter of Credit” guaranteeing payment to the exporter.
The Credit Period
- The typical credit period is 90 days.
- Debtors can apply for loan renewal after 90 days, or for the paid portion, provided they have not been delinquent in payment.
Rediscounting
- A credit facility provided by the BSP to help banks fulfill temporary liquidity needs by refinancing loans they extend to their clients.
- Banks can liquidate and refinance loans using securities as collateral.
Types of Loans Granted by Banks
- Demand or callable loan: Not subject to a specific maturity date and can be called in by the bank at any time.
- Time loan: Has definite maturity dates which can be short-term, medium-term, or long-term.
- Character loan: Usually short-term and based on the borrower's credibility. For loans longer than a year, collateral may be required.
Pawnshop
- A business that provides loans to consumers in exchange for valuable items (collateral).
- The pawner receives loaned money and interest back after repayment.
- Customers include people needing quick cash, those trading used items, and people buying new or used merchandise.
Savings and Mortgage Banks
- Corporations that accumulate the savings of depositors and invest them in marketable bonds, securities, and other financial instruments.
- They also provide loans based on the collateral presented.
Compound Interest Formula
- F=P(1+j/m)^mt
- I=F-P
- F=P(1+r)^n
- Where:
- P: Original Principal
- F: Compound Amount or final accumulation of P
- I: Compound Interest
- j/m: Nominal interest rate per conversion period (j=annual rate, m=conversion periods per year)
- n: Number of conversion periods for the whole term (n=mt)
- m: Number of conversion periods per year
- t: Time or term of investment in years
Simple Interest Formula
- I = Prt
- Where:
- I: Simple Interest
- P: Principal
- r: Interest rate per year
- t: Time in years
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Description
Explore the significant historical events during the Spanish rule in the Philippines, focusing on the Galleon Trade and its impact on economics and culture. Learn about the Obras Pias and the changes introduced during the American Era, including improvements in agriculture and banking systems. This quiz highlights the evolution of trade and charity in the region.
