Credit Money Chapter 2

## Chapter 2 ## Credit Money - Central Notes are credit money. - Work as a medium of exchange - Called money ## Credit of limited Acceptability - **Promissory Note**: Unconditional promise in writing to pay a definite sum of money in the future - **Bank Credits**: - Deposit Currency...

## Chapter 2 ## Credit Money - Central Notes are credit money. - Work as a medium of exchange - Called money ## Credit of limited Acceptability - **Promissory Note**: Unconditional promise in writing to pay a definite sum of money in the future - **Bank Credits**: - Deposit Currency - Bank must have on hand cash ## According to Form 1. **Direct Loan**: - Lender may give the borrower the exact amount as contained in the promissory note. 2. **Discount**: - Lenders collect the interest in advance and gives the balance to borrowers. 3. **Overdraft**: - Accommodation is specifically offered by Commercial banks that honor checks issued even if the amount withdrawn is in excess of the net balance in the bank. ## According to type of user 1. **Consumer or Personal Credit**: Extended to individuals for purposes of funding personal needs. - Payment for tuitions 2. **Retail Credit**: - Consumer credit may either be a Charge account or installment credit. - Good Credit standing. 3. **Installment Credit**: - Paying for such purchases with a small down payment followed by equal monthly installments. 4. **Mercantile or Commercial Credit**: Usually extended to commercial and trade investors. Used to finance the purchase of inventories. - Short-term credit. 5. **Bank Credit**: - Commercial banks extended short-term credit to businessmen for working capital purpose of raw materials. 6. **Investment Credit**: - Businesses usually obtain long-term funds through intermediary financial institutions such as Investment banks, savings banks, insurance companies. ## According to Maturity - **Short-term credit**: Type of loan, payable in 1 year. - **Intermediate or medium-term credit**: 1 year but not exceeding 5 years. - **Long-term credit**: 5 to 10 years beyond. ## According to Security 1. **Unsecured Loans**: - Backed up solely by the integrity, ability and willingness of the borrower to pay - A Single name paper will be responsible of payment. - A Double-name or multiple-name proper will be responsible for the repayment of the obligation. 2. **Secured Loans**: - Guaranteed by the assignment of some tangible assets, which may be sold by the lender in the case the borrower fails to pay. ## According to Purpose of Use 1. **Agricultural Credit**: Loans granted to finance the cultivation, development and improvement of agricultural land. - **Types of Agricultural Credit**: - **Time Loan**: Short-term loan secured by ordinary and regular collateral, usually farm lands. Development and Improvement of land . - **Crop Loan**: For production of crops. Secured by Chattel mortgage on the standing crop. - **Commodity Loan**: Finance Marketing and Distribution of harvested crops. Secured by quedans or warehouse receipt. 2. **Commercial Loan**: Short-term loan finances the production and distribution of commodities by wholesale or retail. 3. **Industrial Credit**: Finance manufacture of goods. Construction of plant buildings. Installation of equipment or machinery. 4. **Consumer credit**: Loan granted for individual for personal use. - Purchase of goods or services - Small investment purposes, tax payments, etc.