Chapter 2: Credit Money

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

## Chapter 2: Credit Money ### Central Notes are credit money: - Work as a medium of exchange - Called money ### Credit of limited Acceptability **A - Promissory Note** - Unconditional promise in writing to pay a definite sum of money in the future. **B - 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 **Overdraft** - Accommodation is specifically offered by commercial banks that honor checks issued even if the amount withdrawn is in excess of the net balance in the bank.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 & trade investors. - Used to finance the purchase of inventories. - Short-term credit. 5. **Bank Credit** - Commercial banks extend short-term credit to businessmen for working capital purposes of raw materials. 4. **Investment Credit** - Businesses usually obtain long-term funds through intermediary financial institutions such as investment banks, savings banks, insurance companies. ### According to maturity A. **Short-term credit:** - Type of loan, payable in 1 year. B. **Intermediate or medium-term credit:** - 1 year but not exceeding 5 years. C. **Long-term credit:** - 5 to 10 years beyond. ### According to security 1. **Unsecured Loans** - Backed up solely by the integrity, ability, & willingness of the borrower to pay. - A single name paper will be responsible for payment. - Double-name or multiple-name proper. - Two or more persons' names in the note that are liable for the repayment of the obligation. 2. **Secured Loans** - Guaranteed by assignment of some tangible assets, which may be sold by the lender in case the borrower fails to pay. ### According to purpose or use 1. **Agricultural credit:** - Loans granted to finance the cultivation, development, and improvement of agricultural land. ### Types of Agricultural Credit 1. **Time Loan:** - Short-term loan secured by ordinary and regular collateral, usually farmlands. - Development and improvement of land. 2. **Crop Loan:** - For production of crops. - Secured by chattel mortgage on the standing crop. 3. **Commodity Loan:** - Finance marketing and distribution of harvested crops. - Secured by quedans or warehouse receipt. 4. **Commercial Loan:** - Short-term loan finances the production and distribution of commodities by wholesale or retail. 5. **Industrial Credit:** - Finance manufacture of goods. - Construction of plant buildings. - Installation of equipment or machinery. 6. **Consumer Credit:** - Loan granted for individual for personal use. - Purchase of goods or services. - Small investment purposes, tax payments, etc.