Chapter 1: Role of Money in our Economic

System
Money- anything used by society as a
medium of exchange, and is widely
acceptable for the payment of goods
and services without questioning the
integrity of the person offering it.

Depositing money in a bank- productive

way of keeping money for future use.

Primary function of money: to facilitate

the process of exchange, exchange of
course could take place without money,
but it would be very complicated.

Commercial business- concerned with

bridging the gap between the producer
and the ultimate consumer; deals with
the distribution of goods.

Barter system- first stage of monetary

development;
direct
exchange
or
swapping of goods for goods, services
for services, goods for services or
services for goods.

Servicing business- concerned with the

rendering of services.

Goldsmiths- helped develop the use of

money by accepting gold bullions to be
converted into coins.

General acceptability- refers to the

willingness of people to accept the
money in exchange for goods and
services.

Coins- considered as the first type of

modern money.
Bangko Sentral ng Pilipinas- manages
the security mint that mints and prints
notes and coins.
Medium of exchange: money enables
goods and services to be transferred
from person to person.
Monetary unit of the country- used as a
standard of value.
Store of value: money can be kept for
future use.
Liquidity- an important concept in which
the magnitude of the cost of converting
an asset into money; relative core of
which an asset may be converted into

Industrial business- concerned with the

manufacture of goods.

Means of deferred payment: money

enables people to buy goods on credit.

Stability of value- prerequisite to

general acceptability; purchasing power
of money should be stable and not
change abruptly.
Portability- being easily carried from
place to place.
Cognizabilitydistinguished
money.

money can be easily

from other kinds of

Divisibility- material used as money

must be capable of being divided into
smaller
denominations
without
impairing or destroying the value of the
whole.
Homogeneity- equal parts of money
should have equal weight and fineness,

money
without
significant and must be made of the same material
inconvenience or loss of time.
and possess equal value.
Money- ultimate goal in liquidity.

Durability- money can withstand wear

and tear.
Commodity money- type of money that
has a commodity value or a value on its
own.

Elasticity- refers to the volume of

money being capable of manipulation
by monetary authorities.
a guaranty of its weight and fineness
and the integrity of the country in
represents.
Coin- product of coinage; a mass of
metal cast in some convenient shape
with a definite weight and fineness.

Commodity value = its money value in

order for a money to circulate
Fineness- ratio of pure gold and silver to
total weight of coin.
Credit money- credit instrument that is
widely acceptable in payment for goods Mint- a place or a factory where coins
and services and in the settlement of are manufactured or minted; where the
existing debts and obligations.
actual manufacture of coins are done.
Representative paper money- backed
up by 100% gold or silver reserves;
circulates in a country adopting the full
gold or silver standard.
Fiduciary paper money- backed up by
partial gold or silver reserve.
Bank notes- refers to the promise of a
bank to pay the bearer or holder of the
note a sum certain in standard money
upon demand or upon presentation of
the note.
BSP- sole Note Issuer in the Philippines.
Fiat money- kind of paper money issued
by a government edict or decree; most
often issued during a war; money value
has no relationship at all with its
intrinsic value; no reserves to back it
up.
Legal tender money- kind of money that
circulates because of its legal tender
money power.

Metals cast into bars called ingots ->

Ingots are made into strips with
thickness of the desired coins -> Blank
coins are punched out of the strips of
metal -> Coins are rolled to produce
their raised edge which is called upset
rim which is done under a heavy
pressure -> Design is stamped on the
blank coins.
Silver coins have grooves or reedings
on their edges so it will evident if any
part of the coin has been shaved off.
Coins- made of metal alloys rather than
pure metal to give them durability.
Intrinsic value of the metal in the coin <
Face value of the coin or the value
assigned to the coin
Gratuitous coinage or Free coinagesystem where by money metals or
metals may be brought to the
government mint and converted into
standard money without any charge or

Legal tender- the debtor is authorized

by law to offer it in payment of his debt
or of his existing obligation.
Coinage- process of making uniform
coins from metals and stamping them
with specific design as
charged by the government > cost of
minting; government earns a profit.
Limited coinage- a system adopted by a
country whereby the government
convert metals into coins only at its
option; coins bear a heavy seigniorage
charge; face value > value of metal
they contain.

expense for minting except for the

delay involved in the process.
Brassage- kind of coinage where the fee
charged by the government to mint
metals = to cover the cost of minting.
Seigniorage- kind of coinage where the
fee

Chapter 1: Role of Money in our Economic System

Functions of money
Three types of credit money
(1) As a medium of exchange
(1) Representative paper money
(2) As a standard to measure the value (2) Fiduciary paper money
(3) Bank note
of goods and services
(3) As a store of value
(4) As a means of deferred payment
Kinds of coinage
(1) Gratuitous coinage or Free coinage
Attributes of good money
(2) Brassage
(1) General acceptability
(3) Seigniorage
(2) Stability of Value
(4) Limited coinage
(3) Portability
(4) Cognizability
Notes
(5) Divisibility
(1) Paper
(6) Homogeneity
(2) Portrait
(7) Elasticity
(3) Watermark
(8) Durability
(4) Security fiber
(5) Security thread
Kinds of money
(6) Background design
(1) Commodity Money
(7) Color of each denomination
(2) Credit Money
(8) Style and size of serial number
(3) Fiat Money
(9) Vignette
(4) Legal Tender Money
(10) Cleanness of print
Two ways of keeping money for future Coins
use
(1) Even flow of metallic grains
(1) By saving
(2) High relief of letter and numerals
(2) By investing
(3) Regularity of reedings and beadings
Investments can be made in
(1) Business
(2) Corporate or government securities
(3) Money market
(4) Real estate properties
(5) Jewelries
Three divisions of investment
business
(1) Industrial business
(2) Commercial business
(3) Servicing business

in

Types of commodity money in modern

times
(1) Gold
(2) Silver

Chapter 2: History of Philippine Currency and

Philippine Monetary Standards
Standard
moneymonetary
unit
recognized by the government as the
ultimate basic standard of value upon
which all other kinds of money are
convertible.

Gold bullion standard- a system wherein

the monetary unit or standard money of
the country is expressed in a definite
weight and fineness of gold in bar or
bullion form.

Managed concurrent system- monetary

system.

Parity- the different kinds of money in

daily use within a country must be
equal to their purchasing power at a
given ration, as between the gold and
silver, at a fix weight and fineness or in
terms of the monetary unit.

Peso- monetary unit in the Philippines.

Monetary standard- currency system
adopted by a country to provide a
stable medium of exchange for
domestic transactions and a means of
international
payment
for
foreign
obligations; a standard that adopts a
monetary unit to be the basis of all
kinds of money in circulation.
Monetary unit- ultimate standard unit of
value, upon which all kinds of money in
the Monetary System is based; also
refers to standard money.

Gold Exchange Standard- monetary unit

of the country is expressed in terms of
gold; a country buys and sells from and
to its citizens at a fixed rate the foreign
exchange of a country under the gold
standard; currency is redeemable in
bills of exchange or drafts payable in
gold in a foreign country.

Automatic Gold Exchange Standardadopted by a country that cannot

practically put up and gold reserves and
Commodity standard- monetary system depends on the gold reserves of the
in which the purchasing power or value other countries to which they are
of the monetary unit = value of a related; adopted by a country that
designated quantity of a particular depends on the gold reserves of other
commodity or set of commodities; aka countries.
full-bodied money because it is 100%
backed-up of gold or silver reserves.
Managed Gold Exchange Standard or
Nearly
Automatic
Gold
Exchange
Monometallic
Standardone-metal Standard- adopted by a country which
standard whereby a country uses either can maintain a partial reserve at home
gold or silver as a standard unit of and would still count as part of its
value.
reserves, short-term investments and
gold deposits that it can build up in
Bimetallic
Standardtwo-metal other countries.
standard whereby gold and silver are
used as a standard unit of value.
Bimetallic standard- the monetary
system when each of two metals

Gold coin standard- government allows

the conversion of gold bullions into
coins which are freely obtained by the
citizens of a country in exchange for
other forms of money.

weights and fineness are used as the

monetary unit or the standard unit of
value.
Legal ratio, coinage ratio or mint ratioratio between the weights of gold coins
and silver coins in the mint.
Market ratio- ratio of the value of gold
and silver as being brought and sold in
the market.
Greshams Law: bad or overvalued
money drives out the good or
undervalued money from circulation.
Given a sufficient supply of bad or
overvalued money which has the
qualities of general acceptability, the
good or undervalued money will be
displaced by the lighter or overvalued
money; operates whenever the market
ratio of silver to gold shifts away from
the mint or legal ratio.
Non-commodity
or
Fiat
Standardmonetary system in which the face
value of the monetary unit is much
higher than that of the value of the
material used as money.
Utopian paper Standard or Pure Fiat
Standard- proposes the adoption of
standard money that is desired
primarily because of what it can buy for
the individual in goods and services and
not for what it is made of, whether gold
or silver; not yet been put into use;
forerunner of the Involuntary Paper
Standard and the Managed Currency

provides the basis for the money in

circulation and the issuer stands ready
to buy or sell either of two metals at
stated prices.
Bimetallism- monetary system in which
coins of two different metals at a fixed
legal ratio of
reserves which is managed by the
Central Bank in such a way as to keep
the price levels fairly stable by
increasing the amount of paper money
at one time and decreasing it at
another, using the trade and industrial
conditions as barometer; People accept
this
paper
money
because
the
government has given it a legal tender
power.
Legal tender power- power given to
money to settle all obligations whether
public or private.
Pre-Spanish regime- Java, China, Siam
and Macau trade relations; barter:
prevailing medium of exchange; coins
circulating as early as the 8 th century;
rice, coffee, sugar, rolled silver wires,
gold dust, gold, cowry money, silver
nuggets: accepted for their weights and
purity as commodity money; carabaodomestic animal used as money; riceprincipal primitive currency; land sold
for several heads of carabaos; 8th-14th
century, penniform gold barter ring was
used with foreign merchants; Piloncito
was also circulated in the island
Penniform- coin made of gold in the
form of a ring with a diameter of about
half an inch.
Piloncito- made of crude rounded gold
coin with flat sides and with a diameter
of about three eights of an inch; worth
two taels; believed to be from Majapahit
Empire.

System.
Involuntary Paper Standard- adopted by
a country that finds itself in a dilemma
of not being able to redeem its currency
in either gold or silver and so is forced
by
circumstance
to
adopt
the
involuntary paper standard; often
comes about during wartime.
Managed Currency Standard- espouses
the use of an inconvertible and
irredeemable paper money that is
issued against no gold or silver

quartos bearing the bust of Isabel II

were made with silver called Isabelinas;
In 1880, peso > dollar; Chinese traders
want silver and reals rather than gold;
Filipinos exchanged their gold for
Mexican silver peso; In 1852, pesos
Fuertes (1st Philippine Bank note
printed) were issued by the El Banco
Espanol-Filipino de Isabel II; In 1855,
five pesetas silver coins were circulated
printed in either Madrid or Paris; In
1887, the word Manila was engraved
below the neck of Queen Isabel II in the
Isabel silver one real; The Spanish
government under Queen Isabel II
decreed in 1857 the establishment of
the Manila Mint; During the reign of
King Alfonso XIII more coins were
minted; In 1877, a royal decree was
promulgated to allow Manila Mint to
coin silver coins of the same fineness as
the Spanish coins of .835 instead of .
900; In 1887, the 1st Treasury
Certificates were issued bearing the
official
seal
of
the
Philippine
Government which bores the signature
of the Insular Treasurer Clem de
Santiago; In 1897, 6 million dollars
marked Filipinas were circulated.

Spanish regime- trade was conducted

by using irregular shaped coins
hammered in Mexico; started in 1571;
In 1770, the Spanish government
ordered from the mint of Spanish
Mexico 6000 silver quartillos which
were minted specifically for the
Philippines; Cuatro coins and octavo
made of copper were circulated bearing
the bust of King Carlos III were
circulated; Quatros bearing the breast
of Carlos IV were issued in 1798-1807;
After the death of King Ferdinand VII,
his daughter Queen Isabel II became
the new heir to the Spanish throne;
Quatro, dos cuatros and four
Colderillas- second coin minted in the
Philippines; half the size of barilla &
made
of
copper;
shape
is
parallelogram; valued @ 1 centavo;
issued to augment the shortage of the
coins circulating due to the SpanishEnglish war of 1762-1764.
Barillas- round; bearing the bust of
Carlos III; made of copper with a
diameter of 18 millimeters; had the
inscription CIUDAD DE MANILA 1776
First
Philippine
RepublicEmilio
Aguinaldo was the leader of the
Philippine Revolution; paper money that
bore the signature of Pedro A.
Paterno(President of the Council State)
that was backed up by the resources of
the Philippines was issued; Aguinaldo
issued coins minted in 1899 in
denominations of two centimos made of
copper which had the inscription of
REPUBLICA FILIPINO around the portion
of the edge with the sun and three stars
in the center and 1899 at the bottom
and in reversed, the words LIBERATED
and CENTIMO DE PESO can be seen;
Provinces such as Island of Panay and
Tarlac struck their own coins.

Hilis kalamay- a variety of silver coins

which bore the seals of the Spanish
rulers Charles II, Philip IV, and Philip V.
Cabo de bara de planta- coins that were
minted in Mexico like the silver cobs;
first coins that were widely circulated
during and after the reign of the King
Philip II.
Spanish Barilla- first coin minted in the
Philippines during the reign of King
Philip V in 1700-1746; made of brass
and was valued at one centavo; had an
inscription which read as Barilla Ano de
1728; coat of arms of Manila was
engraved on the center of the coin;
crudely stuck and its reverse is blank;
barya: loose change.
Spanish Dos Mundos- worlds most
famous coins; aka the Mexican pillar
dollar.
Philippine Coinage Act in March 2, 1903
aka Gold Exchange Standard; the unit
of value of the Philippines was a
theoretical gold peso because the peso
had no physical existence since no gold
peso was ever coined; this depleted our
supply of coins so people begun to
hoard it; the government recalled the
coins from circulation and ordered them
recoined to a smaller size and less
fineness; a fund called Gold Standard
Fund was established in order to
maintain the parity of the silver peso
with the theoretical gold peso
Philippine Bank Notes- was authorized
to issue the Philippine Bank Notes;
notes were not legal tender; payable to
the bearer and the bearer was promised
the
corresponding
equivalent
in
treasury certificates, a silver peso or
subsidy coins; El Banco De Las Islas
Filipinas aka Bank of the Philippine

American Regime- started on August

28, 1898; Filipino silver peseta = 1/5 of
peso; Filipino silver ten centavos = 1/10
of peso; Filipino copper centavo =
1/100 of a peso, Filipino copper cuatro
where 20 cuatros = 1 real; 8 reals = 1
peso; American Dollar was allowed by
the American Military to circulate and
was declared legal tender; with the
issuance of the 3rd Philippine Treasury
Certificates, the American Dollars were
gradually withdrawn from circulation;
treasury notes were payable to bearer
on demand in US silver or in gold coins
of equivalent value; In 1901, Charles
Connant (an American expert in
banking and finance) came as a
financial adviser of the government and
recommended a monetary sustem for
the country which was the gold
exchange standard and the monetary
unit was based on gold; American
Congress passed the
issued executive order 4049 where he
declared
all
Japanese
currency
circulating in the Philippines illegal;
ordered the closing of all banks and
declared the withdrawal of all PNB
notes from circulation; new treasury
certificate with the word victory was
ordered and printed the back of each
bill; Central Bank was established in
1949 to improve the exchange controls
and to adopt the manage currency
standard; a new currency called the
Central Bank Notes was ordered issued
by then President Manuel A. Roxas; In
1972, Central Bank of the Philippines
adopted the Floating Rate were the
peso was allowed to seek its own level
in relation to foreign currencies
depending on the demand and supply
of such foreign currency
Hawala- system of traditional trustbased banking originating in southern

Island was authorized to issue its own

bank notes; redeemable by the issuer,
not made legal tender.
Dollar Exchange Standard- In 1933, USA
abandoned the gold standard when the
USA
president
Franklin
Delano
Roosevelt proclaimed the gold embargo
in
his
territories
and
colonies;
Philippines was affected and had to
abandon the gold standard; Philippine
peso was kept at par with the dollar at
an exchange of 2:1

Asia; means trust or exchange in Hindi;

often used in relation with the word
hundi which stands for bill of exchange;
unofficial alternative remittance and
money exchange system enabling the
transfer of funds without their actual
physical move
Hawaladars- individual brokers or
operators who collect funds at one end
of the payment chain and others
distribute the funds at the other
Fei qian or flying coins- Ancient China

Gold Reserve Act of 1934- dollar had to

be devalued from 12.9 grains of gold to
7 13/21 grains of gold
Japanese Regime- issued a great
quantity of paper bills called the
Japanese War Notes and were popularly
known as Mickey mouse money
because it had no reserves and not
backed up by any government asset;
Involuntary Paper Standard
Post
War
PeriodPhilippine
Commonwealth was established under
President Sergio Osmena; he

Chapter 2: History of Philippine Currency and

Philippine Monetary Standards
Classification of monetary standards
(1) Commodity Standard or Metallic
Standard
(2) Non-Commodity Standard or Fiat
Standard
Commodity standard may either be
(1) Monometallic Standard
(2) Bimetallic Standard
Monometallic

standard

is

further

Aa

divided into
(1) Gold Standard
(2) Silver Standard
Gold standard is divided into
(1) Gold bullion standard
(2) Gold exchange standard
Silver standard is divided into
(1) Silver bullion standard
(2) Silver exchange standard
Classification
of
Gold
Exchange
Standard
(1) Automatic Gold Exchange Standard
(2) Managed Gold Exchange Standard

Chapter 3: Modern Measures of Money

Transactions or narrow measureconsists of currency and checking
accounts
used
for
everyday
expenditures.

Stock prices are more variables than

bond prices and sale commission for
stocks are significantly higher than
those for bonds.

Broader measures of money- add

checking accounts that are used
predominantly as savings vehicles
instead of transaction vehicles and
some other liquid financial assets such
as Time and Savings deposit.

Inflation- sustained increase in the price

level of commodities; an economic
disorder which is characterized by
spiraling of prices as a result of over
issuance of money; occurs when money
supply increases faster than the volume
of trade in the economy.

M1- includes only currency, and

consists of notes and coins, demand
deposits, other checking accounts, and
travelers checks.
Negotiable Order of Withdrawal (NOW)
accounts- interest-bearing accounts on
which a limited number of checks may
be written.
Other checking accounts deposits
consisting of interest-bearing checking
accounts called the Negotiable Order of
Withdrawal
held
in
depository
institutions by individuals and nonprofit
organizations, are also included as M1.
Broader Measures of Money (M2, M3)appropriate if one is inclined to
emphasize the store-of-value function
of money rather than the medium-ofexchange function.
Liquidity- the ease and convenience
with which they may be converted into
a medium of exchange.
Passbook
savings
extremely liquid.

accounts

Deflationcharacterized
by
an
uncontrolled decline in the general
price level as a result of undersupply of
money.
Depression- recession that last longer
and has a larger decline in business
activity; any economic downturn where
real GNP declines by more than 10%,
where as a recession in an economic
downturn that is less severe.
Monetary theory- the analysis of the
relationship between the nations
money supply and economic activity.
The aggregate demand- aggregate
supply framework- the basic model of
total demand and total supply that
shows the nations price level on the
vertical axis and its real output on the
horizontal axis.
A rightward shift of the AD curve,
increases both the equilibrium price
level and the level of real output.

are

Bonds are considered relatively liquid.

A rightward shift of the AS curve

increases the equilibrium level of real
output and reduces the nations price

level.
Common stocks are less liquid than
bonds.

output
demanded,
other
factors
remaining
constant.
Price
level=
independent variable, real output
demanded= dependent variable
Wealth effect of a lower price levelincreases consumers demand for
goods and services.
Aggregate supply curve- relationship
between the nations price level and
the amount of output firms collectively
desire to produce, other factors
remaining constant.
Inflation- other term for a persistent
increase in the nations price level.
Consumer
expendituresinclude
disposable income, wealth, interest
rates, and consumer confidence which
shift the AD curve rightward.
When
the
government
purchases
increase, the AD curve shifts rightward.
A lower Philippine peso stimulates net
exports and aggregate demand for its
goods and services.
Capital deepening- increasing the
amount of capital per worker;
stimulates productivity and shifts the
AS curve rightward
An increase in input prices makes
production less profitable at each
possible general price level, shifting the
AS curves leftward.
Improvements in technology increase

Aggregate demand curve- relationship

between the nations price level and
the amount of real
Aggregate demand-aggregate supply
model- useful for understanding how a
nations policy influences its output,
employment, and price level.
Natural unemployment rate- lowest rate
of unemployment that could be
sustained without producing an
acceleration of the nations inflation
rate.
Natural output level- level of output
corresponding to this natural
unemployment rate; full employment
output level.
Recessionary gap- the magnitude by
which the equilibrium output level falls
short of full employment output.
Inflationary gap- the magnitude by
which output exceeds the full
employment output level.
The difference between a recession and
a recessionary gap is that the recession
is a period of falling real output.
The government strives to avoid an
inflationary gap by preventing
excessive aggregate demand.
Stagflation- combination of stagnant or
falling output and severe inflation;
when a recession combined with higher
inflation.
Misery index- sum of the
unemployment and inflation rates.
The value of money is measured by

the amount of output the workforce can

produce, shifting the AS curve
rightward.

what a unit of money will buy in terms

of a representative group of economic
goods.

Technological innovation- according to

economists, the most single factor
other than population growth in shifting
the AS curves rightward.

Velocity of money- refers to the rate of

turnover of money or the frequency of
spending money.

Automatic Teller Machines (ATMs)reduces the cost of switching funds

from savings to checking accounts
thereby reducing the demand for M1.

As income rises, firms are more likely to

develop lines of credit with their banks.

Central Bank Certificate of

Indebtedness (CBCIs)
Financial innovations increase the
velocity of money.
An increase in interest rates reduces
the demand for money.
The demand for and velocity of money
are inversely related.
Money- safest of all assets in the sense
that its nominal value remains constant
no matter what happens in the stock,
bond, or real estate markets or in the
economy itself.
As the demand for money increases, its
velocity is reduced so that when
economic, political or military outlook
darkens, velocity of money falls.

Equation of exchange- A useful way of

illustrating the connection between
money and economic activity;
developed by Professor Irving Fisher.
Professor Irving Fisher- most eminent
American economist of the first half of
the twentieth century
MVTPT
M= average money supply in existence
in a given year
VT= transactions velocity of money;
number of times the average dollar is
spent per year
P= average price of the transactions
that take place during the year
T= number of transactions occurring
during the year
PT= total peso value of annual
transactions
MVT= expresses the value of annual
transactions but does so in terms of the
money stock and the transaction
velocity of money.

Inflation reduces the real value of

money at a rate equal to the difference
between the annual inflation rate and
the interest rate paid on money.

Transaction velocity of demand

deposits- government collects data on
demand deposit turnover

During hyperinflation, when the implicit

tax on money becomes extreme,
velocity escalates as people

Demand deposit turnover rate=

dividing the total clearings through
checking accounts in a given year by

desperately try to rid themselves of

money before its value plunges again
by holding assets rather than money.

the average magnitude of demand

deposits in that year.
Final goods and services GDP

An increase in income usually results in

increased expenditures by individuals
and firms.
Economies of scale- doubling of income
may require less than a doubling of
average money balances to finance
double level of expenditures.

P= average price of all goods and

services constituting GDP
Y=number of final goods and services
produced in the year, or an index of real
GDP relative to the base year
PY= the peso value of GDP
expenditures in a given year
MVY=average money supply times
annual rate of turnover of money;
aggregate spending on these final
goods and services
Demand for money- the amount of
money m1 or m2 that people desire to
maintain
Md=kPY
k=mD/PY
Md- demand for money
k- fraction of GDP that the public
desires to hold money balances
The first and most essential motive for
holding money is to finance expected
transactions.
Transactions demand for money- when
people hold money in part because
they need to finance forthcoming
expenditures for goods and services but
the timing of their income payments
does not coincide with their expected
pattern of expenditures.

MVYPY
M= average money supply in existence
in a given year
VY= income velocity of money, or the
number of times the average peso is
spent on final goods and services per
year

Three considerations to determine an

assets liquidity:
(1) how easily and quickly it can be
sold
(2) the cost of selling it
(3) stability and predictability of its
price.
Criteria of inflation
(1) Whenever money supply or the
level of credit increase by more
than 15%, which is a normal
increase
(2) Whenever the level of price index
number is the existing level at the end
of the corresponding month of the
proceeding year.
Disadvantages of Inflation
(1) It is unfavorable for the fixed
income
group
because
the
abnormal increase in prices
would mean that they would
enjoy less consumer goods with a
given income.
(2) It may induce the occurrence of
recession in the company.
(3) It
disrupts
debtor-creditor
relationship.
Disadvantages of deflation
(1) Deflation induces curtailment in
production and activities of

Precautionary demand for money- the

maintenance of money balances to
meet unforeseen circumstances
Speculative demand for moneyincludes money balances held with the
intent of securing profit from knowing
better than the market what the future
will bring forth.
Opportunity cost- the price that one
pays for holding money.
Liquidity preference schedulerelationship between the interest rate
and the demand for speculative money
balances

business firms, since a significant

decrease in prices will cut down
all profits and may eventually
cause losses.
(2) It may cause a depression in
employment and consequently a
loss in purchasing power.
Four components of nations aggregate
demand for goods and services
(1) Consumer demand
(2) Investment demand
(3) Government purchases goods
and services
(4) Net countrys export of goods
and services

Chapter 3: Modern Measures of Money

Factors that shift the aggregate
demand curve
(1) Consumption
(2) Investment
(3) Government purchases of goods
and services
(4) Net exports of goods and
services
Determinants of consumer expenditures
(1) A reduction in income taxes by
would
increase
consumption
expenditures.
(2) An increase in stock and bond
prices
would
stimulate
consumption.
(3) Lower interest rates would boost
consumer expenditures
(4) An
increase
in
consumer
confidence
would
stimulate
consumption.
Determinants of investments
(1) Lowering
of
interest
rates
stimulates investment
(2) Boosting
in
investment
expenditures associated with any

Quantity inputs available

(1) Labor
(2) Capital
(3) Materials
Inputs in the production process
(1) Labor
(2) Capital
(3) Land
(4) Raw materials
The determinants of velocity of money
(1) Institutional factors that underlie
the synchronization between
receipt and expenditures
(2) The state of financial technology
(3) Interest rate levels
(4) Prevailing degree of economic
uncertainty or state of economic
confidence
(5) Inflation expectations
(6) Income level
If the money supply changes, one of the
two things happen
(1) VY must change proportionally in
the opposite direction so that

given
interest
rate
and
improvement
of
business
confidence
(3) Providing capacity to meet future
market demand
(4) An increase in expected sales
and/or in the capacity utilization
rate will stimulate investment.
(5) Tax
policy
toward
business
influences investment spending.

MVY and PY remain unchanged.

(2) GDP expenditure must move in
the same direction as money
supply.
Motives for holding money
(1) Transactions demand
(2) Precautionary demand
(3) Speculative demand

Examples of factors that influence net

exports
(1) Foreign exchange rate
(2) Income in foreign nations
(3) Government income
Factors that shift the aggregate supply
curve
(1) Quantity of input
(2) Prices of inputs
(3) Technological change

Chapter 4: Credit, Its Uses, Classifications and

Risks
Credit- in general, it is based on
confidence in the debtors ability to
make payment at some future time
Credit- power or ability to obtain
money, goods and services at the
present time in exchange for a promise
to pay with money upon demand or at a
future determinable time

Revolving charge- the credit is not paid

full within this period but is divided into
amounts which are to be paid in longer
periods
such
as
semi-monthly
installments
Installment
planresembles
the
revolving charge in that the debt is paid
off over a certain period of time but
usually requires a down payment

Credit always involves two parties.

Debtor- who obtains the money, goods
or services in exchange of his promise
to pay at a future date

Personal loan credit differs from other

forms of consumer credit in that cash or
money is given as credit instead of
goods and services.

Creditor- who lends his money, goods or

services for the right to collect on
demand or at a future determinable

Personal loans are usually granted for

the purchase of expensive consumer
items.

time
Credit is always expressed in terms of
money.
Credit has always been based on trust
and confidence.

Real estate credit- falls under personal

loan credits in which it is obtained
purposely
for
the
acquisition,
improvement, and expansion of real
estate properties.

There is always the possibility of the

obligation not being paid.

Social Security System (SSS)- a good

source of personal loan for private
employees and employers

The role of credit is to provide financial

means for businessmen who takes
advantage of market opportunities in
both domestic and foreign markets.

Government Service Insurance System

(GSIS)- a good source of personal loan
for government employees, building
and loan associations

Consumers credit is a vital link

between production and distribution.

A persons wealth- an indicator of ones

capital position and his ability to pay

Personal credits- those credits obtained

for ones use

Occupation- also important because

some kinds of occupation are better
risks than others

Regular charge accounts- you are

charged the goods you obtained on
credit and you usually pay within 15 to
20 days after you are billed

Truth in Lending Act- act designed to

protect consumers against unfair billing
practices of people who extend credit to
a purchaser of goods on installment
basis.

Commercial or Mercantile Credit- credit

extended by one businessman to
another businessman

Agricultural Time Loan- loan used to

finance
the
development
and
improvement of a farmland

Merchandise credits or trade creditstransactions that are in the form of

goods

Commodity Loan- loan obtained

finance the selling and distribution
farm crops which are kept in
warehouse
and
evidenced
warehouse receipts

Commercial
creditgenerally
unsecured short-term type of credit

an

to
of
a
by

Industrial credits-loans granted to

industries to finance the acquisition of
equipment and machineries to finance
the construction of a plant or factory
and to some extent to finance the
According
to
traditional
theory, purchase
of
raw
materials
for
commercial banks are limited to manufacturing capital goods or goods
Bank credits or bank loans- credits
granted by banks to businessmen to
finance their short term credit needs

granting short-term loans.

for consumption purposes

Export credits- obtained to finance the

selling of goods outside the country

Real Estate credits- loans to finance the

purchase and improvement of real
properties like a house or a building

Import credits- also obtained to finance

the buying of goods from other
countries
In financing an import, the importer
applies for a letter of credit from his
domestic bank.

Government or Public credits- credits

obtained from any of the government
institutions or their instrumentalities
Secured credits- credits which are
covered by the properties of value
called collaterals to guarantee loans

Letter of credit- L/C

Long-term borrowing- one of the most
common forms of financing used by
business enterprises
Investment credit- when a business
prefers to acquire funds by entering
into a long-term borrowing agreement

Unsecured credit- a credit where the

borrower has merited the full trust and
confidence of the creditor; that is, the
creditor is willing to part with his
money, goods or services for just a
mere promise to pay
Character loan or a clean loan- no
property of value was pledged to secure
a loan

Agricultural credits- credits given to

farmers
for
the
development,
improvement and cultivation of their Short-term loans- those loans payable
lands
within a year
Crop loan- loan given to farmers for the
purpose of financing the production of a
particular crop

Medium-term loans- payable from one

year to five years; aka intermediate
term loan

Livestock loan- loan obtained to finance

the raising of animals for breeding
purposes
usually up to 15 to 20 years

Long-term loans- payable beyond 5

years and

Direct loans- loans whose interest

payments are made at the time the
loan matures

Commercial banks- specializes in giving

commercial loans to businessmen

Direct loans- the borrower gets the

entire amount applied for and upon
maturity of the loan principal and
interest are paid
Discount loans- loans where interest

Banks- most common sources of credit

Thrift banks- gives loans to individuals

for their personal needs and to the
industry for the enhancement of our
agriculture and our economy
Savings and mortgage bank- organized
for the purpose of encouraging

payments are deducted at the time the

loans are granted
Discount loans- the borrower obtains
only the proceeds of the loan wherein
the discount is deducted from the
principal and upon the maturity the
entire amount of loan is paid
Credit Line- an agreement between the
debtor and the creditor wherein the
debtor is allowed to obtain funds from
the creditor up to a certain amount
Regular credit line- one in which the
debtor is allowed to draw funds from
the creditor up to an amount agreed
upon and the funds drawn when paid
can be borrowed again
Regular
credit
linethe
debtor
repeatedly borrows these funds from
the creditor as long as these funds are
paid when due then the loan becomes
automatically renewed

thriftiness among the people

Savings
and
mortgage
bankaccumulates the savings of depositors
and investing them together with its
capital in marketable securities such as
bonds and other debt securities
Stock savings and loan associationengaged
in
the
business
of
accumulating the savings of the people
and using such accumulated finds for
loans and investment in securities of
productive enterprises or securities of
the government
Private development bank- bank that
aims to develop and expand the
economy of the country pursuant to the
socio-economic
program
of
the
government
Private development bank- a good
source of development loan for
industrial and agricultural growth

Maximum
loan
commitmentthe
borrower can obtain funds from the
creditor up to a certain amount agreed
upon

Rural banks- banks organized to cater

to the needs of farmers and small
businessmen
in
the
rural
areas
including the cottage industries

Overdraft line- a credit line in which the

bank allows its depositors to draw from
the bank beyond their actual deposits

Retail stores- one of the biggest sources

of personal credit; give personal
consumer loans to their customers on
an open book account basis

Overdraft line- used to be the most

popular type of credit line from the
banks
Credit
unionscooperative
organizations that lend savings of their
members to other members who are in
need
Credit unions- one of the cheapest
sources of credit since borrowing

Capacity- includes the ability of a

company or management to make good
its commitment
Capital- financial strength of a business;
a guarantee to the creditor that a credit
transaction entered can be redeemed

members pay a very low interest on

loans
Individual money lenders- individuals
who have the excess funds and who
usually lend such funds to others who
are in need; aka loan sharks or usurers
Usury- charging
interest

of

the

Capitalcan
be
determined
by
deducting the total liabilities from the
total assets
Collaterals- properties of value pledged
to secure a loan

exorbitant

Chattel mortgages- loans secured by

movable personal properties

Insurance companies- also sources of

credits for insured individuals

Real estate mortgage- loans secured by

fixed assets

Cash surrender value- refers to the

value of a policy as it is surrendered
after paying premiums for several years

Condition- refers to the environment in

the customers industry, economically,
legally and politically in relation to
growth

Sales finance companies- one of the

biggest sources of consumers credit
which specialize in buying installment
contracts
For every credit, there is risk involved.

Condition- external factors over which

the credit applicant has little or no
control but which may have significant
influence upon the appraisal of credit
risk

Credit risk- refers to the possibility of

non-payment of the obligation when it
falls due.

Application form- best source of data

that initiates the relationship between
the debtor and the creditor

Cs of credit- credit risk may be

minimized by using this as a careful
examination
guide
in
day-to-day
business

Customer- cheapest and easiest source

of credit information

Character- quality of credit risk which

makes the debtor pay or intend to pay
when his debt is due
Character- sum total of a persons
mental and moral qualities
Capacity- signifies the ability
debtor to pay his obligation

of

Special Mercantile Agencies- trade

agencies; their scope of coverage is

Personal interview- allows to

precisely what you want to know

ask

Dun and Bradstreet- most frequently

used General Mercantile Agency and
oldest organization of its kind that
prepare trade summaries by canvassing
all subscribers

limited to a single trade or limited to a

number of allied trades
Personal Investigations- another form of
gathering information for credit files;
provides
investigation
that
can
investigate methodically and regularly
Public and published records- consist of
all legal recordings such as deeds,
mortgages, suits, judgements, and
current news
Credit
bureausassociations
of
businessmen
providing
information
gathered from each other to other
members of the organization
Credit Interchange Bureau- exchanging
of information among local credit
bureaus
Bank Credit Department- one of the
best sources of credit information
Information from reference- indicated in
the information sheets and obtained
from the interview could give light on
the prospective customers credit
worthiness
Credit report- now compiled when all
data have been gathered

Chapter 4: Credit, Its Uses, Classifications and

Risks
Characteristics of credit
(1) Credit as a Bipartite Contract
(2) Credit as a Pecuniary Contract
(3) Credit as a Fiduciary Contract
(4) Risk is always involved
(5) Credit always involves futurity
Three types of personal credits
(1) Service credit
(2) Retail credit
(3) Personal loan credit
Three categories of retail or consumers
credits
(1) Regular charge account
(2) Revolving charge
(3) Installment plan
Best criteria for granting personal credit
(1) Employment
(2) Personal resources
Primary factors in determining the basis
of personal credit
(1) Wealth
(2) Accumulated resources
Indicate a persons capacity as well as
ability to repay his credit
(1) Wages
(2) Salary
(3) Regular remunerations
Other factors
(1) Additional sources of income of
family
(2) Size of the family
(3) Paying habits of the borrower
Also used in determining a credit risk
(1) Length of employment
(2) Permanence of employment

The law requires creditors to furnish

each
customer
the
following
information
before
transaction
is
consummated
(1) The cash price of the property to
be services or acquired
(2) The down payment if any, or the
trade-in price
(3) The difference between the
amounts under 1 and 2
(4) The
charges
individually
itemized, which are paid or to be
paid in connection with the
transaction and which are not
incidental to the extension of
credit
(5) The total amount to be financed
(6) The finance charged expressed in
terms of pesos
(7) The percentage that the finance
charge bears to the total amount
to be financed which is expressed
as a simple annual rate on the
outstanding unpaid balance of
the obligation.
Forms of agricultural credit
(1) Crop Loan
(2) Livestock Loan
(3) Agricultural Time Loan
(4) Commodity Loan
Institutions
which
are
principal
supporters of agricultural loans in the
Philippines
(1) Development
Bank
of
the
Philippines
(2) Land Bank of the Philippines
Examples of short-term loans
(1) Commercial bank loans
(2) Retail credits

(2) Maximum loan commitment

(3) Overdraft line
Sources of credit
(1) Banks
Classification of banks
(1) Commercial banks
(2) Thrift banks
(3) Rural banks
(4) Specialized government banks
Three categories of thrift bank
(1) Savings and mortgage bank
(2) Stock
savings
and
loan
association
(3) Private development bank
Other sources of credit
(1) Retail stores
(2) Credit unions
(3) Individual money lenders
(4) Insurance companies
(5) Sales finance companies
Cs of credit
(1) Character
(2) Capacity
(3) Capital
(4) Collateral of the borrower
Prevailing Conditions surrounding the
business

Three type of credit lines

(1) Regular credit line

Most business are subject to two types

of movement, namely
(1) The regular recurring seasonal
activity
(2) The
regular
oscillation
of
business as a whole
Two kinds of credit bureaus
(1) Retail Credit Bureau
(2) Credit Interchange Bureau
Type of information you obtain from
bank
(1) How long did the bank have the
account?
(2) What is the average account
balance?
(3) Is the customer a borrowing or
non-borrowing customer?

Chapter 5: Credit Instruments and its Negotiation

Credit
instrumenta
document
evidencing the existence of a credit
obligation
which
defines
the
responsibility of the debtor towards his
creditor and the right of the creditor to
collect from the debtor on the date
designated
Export credit- involves other credit
instruments, such as bill of exchange
and letters of credit
Credit
instruments
with
general
acceptability- instruments that are
widely acceptable without questioning
the integrity of the person offering it;
credit money
Credit
instruments
with
limited
acceptability- those credit instruments
that are accepted only by few people

Bond
certificatesindebtedness of a
bondholders

evidences
corporation

of
to

Many people invest in bonds because

they are safer investment than stocks.
Debenture bonds- unsecured bonds
issued against the general credit
standing of the issuer; these bonds
usually earn higher interest rates that
other types of bonds to compensate by
the inclusion of special features
Collateral trust bonds- secured by a
pledge of corporate stocks and bonds,
and evidences of indebtedness of other
corporation which are owned by the
issuing corporation

of

Mortgage bonds- bonded indebtedness

secured by a mortgage on real
properties of the corporation

Stockholder- a part owner of a

corporation who is entitled to its
earnings known as dividends

Sinking
Fund
bondsbonded
indebtedness requiring the compulsory
maintenance of a sinking fund to
redeem the bonds at a maturity

Stock
certificatesevidences
ownership in a corporation

Dividends- payment declared by its

board of directors
Preferred stocks- stocks having special
privileges and carry certain limitations
or restrictions

Sinking fund- reserve accumulated from

the annual income of the company used
for a specific purpose
Registered bond- one which is issued in
the name of a particular person or
entity

Preference as to dividends- means that

the preferred stockholders receive their
dividends ahead of the common
stockholders

The names of the bondholders are

registered in the books of the
corporation.

Preference as to assets- means that the

preferred stockholders have prior claim

Guaranteed
bondsbonds
whose
principal and interest payments are

on the assets of the corporation over guaranteed by a company other than

that of other stockholders
the issuing corporation; usually arise
due to reorganization and consolidation
Common stockholders- entitled to
residual claim on the business and they
have the voting power
Convertible bonds- bonds which could
be exchanged with other securities of
the corporation within the duration of
the bonded indebtedness
Redeemable bonds- bonds which are
subject to call, redemption, or purchase
before they are due
Optional redemption- the corporation
may or may not redeem the bonds
depending
on
the
circumstances
prevailing
Mandatory redemption- the corporation
is required to redeem the bonded
indebtedness within a specified time
Serials bonds- bonded indebtedness if a
single issue but are divided into groups
of different maturity dates and could
possibly have variable terms and
conditions
Income bonds- usually issued to
organizers of a corporation during the
early years of the firms operation, or if
the firm is in the process of
reorganization
Coupon bonds- bonds with detachable
coupon
which
evidence
interest
obligations
payable
at
specified
periods; may be negotiated separately
from the bond
Profit-sharing bonds- bonds allowed to
participate in the earnings of the
company in addition to interest
payments

The price of the money is the rate of

interest charge for its use.
Fund users- those companies with high
credit rating that are in need of funds
Fund
suppliersindividuals
or
corporations with excess liquidity who
are looking for possible investment
outlets for their excess funds
Brokers- individuals or institutions
engaged in the buying and selling of
money market instruments
Interbank call loans- loans which should
be paid upon demand or call by the
lending institutions; do not have
definite maturity dates; resorted to by
banks which borrow from and lend to
each other overnight funds to meet
their daily reserve deficiency
Call tickets or call slips- written
instructions issued by the transacting
banks to the Central Bank to debit the
deposit balance of the lending banks
and credit those of the borrowing banks
Promissory notes- aka dealer papers;
short-term indebtedness issued by
institutions as direct obligors; facilitates
the financing of the corporation
Repurchase agreement- papers sold by
dealers to buyers at an agreed price;
commonly used by securities dealers as
means of financing investments
Certificate

of

assignments-

debt

Money market bills- negotiable financial

instruments bought and sold in the
market
Money market- a meeting place for
users and suppliers of short-term funds
Transactions in a money market are
consummated upon agreement on the
price.
of the instrument or a portion of an
original
lump
sum
obligation
subsequently
broken
down
and
denominated into a different Peso value
Commercial
papersunsecured
promissory
notes
issued
by
corporations that use the proceeds to
finance short-term working capital
needs; an instrument which is issued,
endorsed, sold, transferred or conveyed
to another person or entity with or
without
recourse,
specifying
the
indebtedness of any person or entity,
especially
banks
and
non-banks
performing quasi-banking functions
The issuers are presumably the highest
quality firms.
CBCIs- Central Bank Certificate of
Indebtedness are tax-free and earn
reasonable rate of interest
Treasury bills- bearer notes or debt
instruments sold every week at a
discount by the Central Bank through
competitive auction; a liability of the
Philippine Government to pay the
bearer a fixed sum after a specific
number of days from the date of the
issue
DBP Progress bonds- issued by the
Development Bank of the Philippines
and secured by their assets; tax-free

instruments
that
evidence
lawful
ownership of the holder to the extent of
the Peso value indicated on the face of
the instruments or a batch of an
original lump sum of promissory notes
Certificate
of
participationdebt
instruments which evidence lawful
ownership of the holder to the extent of
the Peso value indicated on the face
Treasury bills- carry any original
maturity but typically are issued to
mature beyond ten years
Bonds- long term indebtedness issued
by any government entity
ACA Notes- issued by the Agricultural
Credit Administration
EPZA Bonds- issued by the Export
Processing Zone Authority to finance
housing development in Bataan Export
Processing Zone
NFA Bonds- issued by the National Food
Authority
NDC
Bondsissued
Development Company

by

National

LRT
Notes- issued by the Railways
Transit Authority to meet funding
requirements
Bahayan Certificates- issued by the
National
Hone
Mortgage
Finance
Corporation to fund housing loans
applied by PAG-IBIG members
Lending investors- organized single
proprietorships on partnerships using
their own capital for the purpose of
extending all types of loans
Dealer- intermediary in the exchange

and convertible into preferred stocks of

selected private corporations which are
under the management of DBP
PW and Ed Bonds- represent direct
unconditional
obligations
of
the
Philippine government for public works
projects
and
improvements
of
educational facilities
LBP Bonds- represent obligations of the
Land Bank of the Philippines
Treasury Notes- have original maturity
of one to ten years and pay coupon
interest semiannually and also sold via
close auction
Underwriter- dealer who handles new
lines of securities; purchases the
securities and then sells them in the
market hoping to make a profit or
spread between the buying and selling
of such securities; ability to provide
accurate information to his clients as
well as proper contacts with established
businesses
Transactions in the primary marketinvolve the issuance of new securities
Transactions in the secondary marketconfined
to
already
issued
and
outstanding securities that are of wellknown
companies
whose
credit
worthiness are unquestionable and are
usually of large volume

process actually becomes a party to a

money market transaction; maintains
an inventory of securities, sells his
securities to other buyers, and hopes to
make a profit in the process of buying
and selling these securities
Broker- not a party to the transaction;
only acts as an agent for his clients who
are either buyers or sellers; makes
buyers and sellers meet; can give
proper advice to his clients and sees to
it that transactions are properly
executed; earns a commission in the
transaction

Non-negotiable promissory note- nontransferable; aka IOU; the negotiability

depends on how well the public merited
the trust and confidence of the issuer of
the note
Secured promissory notes- guaranteed
with properties of value
Unsecured promissory notes- greatly
depend upon the character of the
borrower; aka clean or character loans
Financial institution deposits- promises
of certain institutions to return money
deposited with them

Letter of Credit- letter made by one

bank addressed to another bank
whether domestic or foreign, requesting
Credit
instrument
for
commercial the bank to honor drafts drawn against
purposes- aka instruments
it in behalf of a third party under
specific terms and conditions as
Promise-to-pay- involves two parties specified in the letter
which are the maker(debtor) and the
payee(creditor or the party receiving Commercial letter of credit- often used
payment)
in international trade and it includes
import and export letter of credit
Order-to-pay- involves three parties
which are the drawer, drawee and Traveler letter of credit- may be applied

payee

for by a traveler from his home bank

instead of purchasing a travelers check

Drawer- party who orders payment

Drawee- party ordered to pay
Payee- receiver of the payment
Promissory note- a written promise of
one person to pay another a sum of
certain money on demand or at a
determinable future time; used to
evidence obligations incurred through
the purchase of merchandise or
acquisition of cash credit
Negotiable
promissory
notetransferable; may be discounted, used
as a collateral and sold or disposed of in
the financial market
Be presented to the bank for
encashment and only good for deposit
Post dated check- check that shows a
future date; can be paid or deposited on
the date it bears
Stale check- check not encashed within
a reasonable time
Managers check or cashiers check or
treasurers check- check drawn against
the manager of the bank or cashier or
treasurer
Bouncing or rubber check- check issued
without sufficient funds or drawn
against uncollected deposits
Counter check- used by a depositor who
has forgotten his check or by a
depositor who would like to close his
account but whose booklet of checks
has been exhausted
Certified check- depositors own check

Open book account- mere entry in the

ledger
Orders to pay- second
commercial instruments

type

of

Checks- most commonly used bills of

exchange; always drawn on a bank and
paid on demand; an order of a
depositor to his bank, requesting it to
pay a sum of certain money to a person
named therein, or his order to the
bearer; credit instrument with limited
acceptability
Crossed check- check bearing two
parallel lines located at the upper lefthand corner; check cant
drawer or by the bank
Returned check- check returned by the
bank for various reasons, such as the
amount in figure does not tally with the
amount in words or post date check or
drawn against uncollected deposits
Giro system- technique in credit
transaction which is now being used;
features the use of electronic machines
Draft- a bill of exchange which is
unconditional order made by the drawer
requesting the drawee to pay the payee
a sum certain in money on demand or
at a determinable future time
Demand draft- aka sight draft; subject
to payment upon presentation or
demand to the payee, or his order or
bearer
Time draft- subject to payment at a
determinable future time; the holder
commences counting from the time the

which the bank certifies; bears the

stamp certified across its face to show
that the bank guarantees the payment
of the instrument
Falsified check- check which has been
deliberately imitated to deceive the
payee or the bank

draft is presented or exhibited to the

drawee
Bank draft- the party ordered to pay is a
bank
Trade draft or commercial draft- party
ordered to pay is a businessman or a
business enterprise

Forged check- imitated signature

Trade or commercial drafts finance
Travelers check- very common credit commerce while bank drafts are often
instrument used by travelers and which purchased for investments because of
commands
almost
universal their excellent ratings
acceptability
Acceptance draft- time draft which
Personal check- used for defraying necessitates the acceptance of the
individual or personal expenses
drawee
Business check- used for
expenses
incurred
by
establishments

defraying
business

Bankers acceptance draft or a bank

acceptance draft- if a bank is induced to
accept a draft

Cancelled check- check cancelled either

by the

Traders acceptance draft or a trade

acceptance- if the businessman accepts
the draft

documents to accompany the draft

when presented for payment
Clean drafts- drafts that can be
collected without presenting documents
to accompany the drafts
Bank money order- an order of one
bank to another bank to pay a person
named therein a sum certain in money
on demand
Postal money order- an order of a post
office to another post office to pay a
person named therein a sum certain in
money on demand
Negotiable instrument law states that

Documented
draftsdrafts
that
necessitate
Qualified endorsement- constitutes the
endorser a mere assignor of the
instrument; one which restrains, limits
or qualifies the liability of the endorser
in any manner different from what the
law imports as his true ability,
deductible from the nature of the
instruments
Endorsement
without
recourseindicates a purpose not to assume the
liability for its payment and is sufficient
to transfer title, and provided there is
no
fund,
concealment,
or
misrepresentation
Conditional endorsement- the person
required to pay the instrument may

an instrument is negotiated when it is

transferred from one person to another
in such manner as to constitute the
transferee from one person to another
in such manner as to constitute the
transferee as the holder thereof.
Negotiation by endorsement may be
written at the back of the instrument or
upon a paper attached thereto called an
allonge.

disregard the condition and make

payment to the endorser it his
transferee whether the condition is
fulfilled or not
Endorsements of instruments payable
to bearer- may be further negotiated by
delivery
Endorsement where payable to two or
more persons- payable to two or more

Endorsement- act of affixing ones

signature at the back of the instrument
or an allonge in evidence of his transfer
of it
Special or full endorsement- specifies
the name of the person to whom, or to
whose order, the instrument is made
payable
Endorsement in blank- specifies no
endorsee; done by merely affixing ones
signature on the instrument without
adding anything
The holder may change a blank
endorsement by writing over the
signature of the endorser in any blank
contract consistent with the character
of the instrument
Restrictive endorsement- prevents the
further negotiation of the instrument

Chapter 5: Credit Instruments and its Negotiation

A firm engaged in commerce is
interested in three kinds of credit
instruments:
(1) The open book account
(2) The promissory note
(3) The trade acceptance
Classification of Credit Instruments
Two broad classifications of credit

(3) Mortgage bonds

(4) Sinking fund bonds
(5) Registered bonds
(6) Guaranteed bonds
(7) Convertible bonds
(8) Redeemable bonds
(9) Serial bonds
(10)
Income bonds
(11)
Coupon bonds

instruments
(1) Credit instruments with general
acceptability
(2) Credit instruments with limited
acceptability
Credit money may be in the form of
(1) Bank notes
(2) Treasury certificates
Two subdivisions/ Two types of credit
instruments with limited acceptability
(1) Credit instrument for investment
purposes
(2) Credit instrument for commercial
purposes
Credit instruments for
purposes
(1) Stock certificates
(2) Money market bills

investment

Stocks are divided into two types

(1) Preferred stocks
(2) Common stocks

(12)

Profit-sharing bonds

Parties to a money market transaction

(1) Fund user
(2) Fund supplier
(3) Broker
Kinds of money market instruments
(1) Interbank call loans
(2) Promissory notes
(3) Repurchase agreement
(4) Certificate of assignments
(5) Certificates of participation
(6) Commercial papers
(7) CBCIs
(8) Treasury bills
(9) DBP Progress bonds
(10)
Other
government
securities
Commercial papers may either be
(1) Financial in nature
(2) Non-financial in nature

Dealers intermediating in the money

market
(1) Commercial banks
Examples of government-owned bonds
(2) Savings banks
(1) Central
bank
certificate
of
(3) Investment houses
indebtedness
(4) Investment companies
(2) LBP bonds
(5) Finance companies
(3) DBP Progress bonds
(6) Securities dealers
(4) Premyo Savings Bonds
Kinds of Bonds
(1) Debenture bonds
(2) Collateral trust bonds
Investors in the money market
(1) Individual investors
(2) Trust funds and pension funds
(3) Government insurance
(4) Private insurance companies
(5) Other government corporations
(6) Other private corporations
(7) Lending investors
(8) National government
(9) Other institutions
Government Insurance

Two types of Letter of Credit

(1) Commercial letter of credit
(2) Traveler letter of credit
Crossed checks may either be
(1) General crossed
(2) Specially crossed
Managers checks and cashiers checks
are drawn for the following reasons
(1) To defray the banks routinary

(1) Social Security System

(2) Government Service Insurance
System

expenses
(2) To accommodate customers who
do not have checking accounts
but who are constrained to pay in
checks

Other institutions
(1) DBP
(2) LBP
Two things that the bank certifies
(3) Philippine Amanah Bank (Islamic
(1) Amount
Bank)
(2) Signature of drawer
Credit
instrument
for
purposes subdivisions
(1) Promise-to-pay
(2) Order-to-pay

commercial

Promise-to-pay instruments consist of

(1) Promissory notes
(2) Financial institution deposits
(3) Letter of credit
(4) Open book accounts
Further classifications of promissory
notes
(1) Negotiable promissory notes
(2) Non-negotiable promissory notes

Kinds of drafts
(1) Demand draft
(2) Time draft
(3) Bank draft
(4) Commercial or trade draft
(5) Acceptance draft
(6) Documented draft
(7) Clean draft
Two types of money orders
(1) Bank money order
(2) Postal money order

Kinds of endorsement
(1) Special or full endorsement
(2) An endorsement in lank
(3) Restrictive endorsement
Definite advantages of promissory note
(4) Qualified endorsement
over an open book account
(5) Conditional endorsement
(1) Very good proof of existence of
indebtedness
(2) Debtor is obliged to meet it when Other rules on endorsement
(1) Endorsements of instruments
due
payable to bearer
(3) Can
be
discounted
or
(2)
Endorsement where payable to
rediscounted with the Central
two or more persons
Bank for funding
(4) Could be sold for a higher price;
saleable
Advantages of checks
(1) Easy and safe means of paying
(2) Easily negotiated
(3) Convenient to use for large
payments
(4) Drawers can put a stop payment
on their check in case of loss,
robbery or theft, and noncompliance of commitment
(5) Forged checks paid by bank is
responsibility of the bank

(6) Checks cancelled by the bank

may
serve
as
receipt
for
payments made
Disadvantages of checks
(1) Not readily accepted for payment
especially if the drawer does not
know the payee or the payee
does not trust the drawer
(2) Drawers have to carefully keep
track of their deposits
(3) Carelessness may result in loss of
the drawers check
(4) Most of swindling cases were
done because of checks
Requisites for negotiability
(1) In writing signed by the maker or
the drawer
(2) Payable on demand or at a future
determinable date
(3) Payable to order or bearer
(4) Contain no conditions
(5) If addressed to a drawee, must
be indicate the name with
certainty
(6) Endorsement must be in the
name
appearing
on
the
instrument
(7) Misspelt name must be indicated
below with the word by

Chapter 6: The Financial System

Financial intermediaries-one of the most
familiar activities of financial firms; act
simultaneously
as
borrowers
and
lenders
Financial system- primary source of
statistics used in analyzing national and

Financial
intermediariesuseful
organizations that contribute materially
to the economic process and facilitates
the flow of funds from a surplus unit to
a deficit spending unit, improving
economic efficiency in the process

international economic activities

Gross
national
productaccepted
measure of the aggregate output of the
economy
Value added- appropriate measure of
the output of any single industry;
difference between the market value of
the product produced and sold by the
industry
by
way
of
financial
intermediaries
Primary claims- claims from money
market
instruments,
government
securities, commercial paper, corporate
and municipal bonds, mortgages, and
common stocks
Secondary claims- claims from banks,
life insurance companies, mutual funds

Transaction costs- involves the money

and time spent carrying out financial
transactions
Diversification- spreading of risk made
possible by pooling of funds; extremely
important for the individual saver
Philippine financial system- plays a vital
role in our society and economy as a
whole; affects the lives of every person,
family, business and the government
Financial system- greatly affected by
our political, social and economic
conditions in the country; greatly
influenced by International entities such
as the International Monetary Fund
(IMF), the Asean Development Bank
(ADB)
and
other
international
institutions

Asymmetric information- gives rise to Bangko Sentral ng Pilipinas- supervises

two
problems
that
reduce
the and regulates the financial system;
willingness to lend
provide policy directions in the areas of
money, banking and credit; have
Adverse selection- tendency for those supervision over the operation of banks
persons with the highest probability of and exercise such regulatory powers
experiencing financial problems to seek and other pertinent laws
out and be granted loans
Maintain
price
stabilityprimary
Moral hazard- occurs after a loan is objective
made; arises because the debt contract
allows the borrower to keep any and all Commercial banks- considered the of
returns that exceed the fixed payments our financial system; hold the deposits
called for in the loan agreement
of millions of people, governments and
business enterprises; play a key role in
A major rationale for the existence of the channeling of funds; make funds
financial intermediaries is their ability available through their lending and
to deal with asymmetric information investing activities to borrowers
and the associated problems of adverse
selection and moral hazard.

Commercial banks are the heart of our

financial structure since they have the
ability to add to the money supply of
the nation and thus create additional
purchasing power
Bangko Sentral ng Pilipinas- strongly
influences the ability and willingness of
banks to make loans by setting certain
regulations and by utilizing certain
policy tools

together with its capital for loans and

investment in securities of productive
enterprises
Private Development Bank (PDB)- bank
that exercises all the powers and shall
assume all the obligations of the
savings and mortgage bank as provided
in the General Banking Act except as
otherwise stated

Banks- conduits through which the

Bangko Sentral ng Pilipinas implements
its monetary policies

Rural Banks (RB)- any bank authorized

by the Central Bank to make credit
available to farmers, businessmen and
cottage industries in the rural areas

Commercial bank- any corporation,

which accepts or creates demand
deposits subject to withdrawal by
means of checks

Cooperative Banks- banks established

to assist the various cooperatives by
lending those funds at reasonable
interest rates

Universal Bank (UB) or Expanded

Commercial
Bank
(EKB)any
commercial bank which performs the
investment house function in addition
to its Commercial Banking Authority;
may invest in the equities of allied and
non-allied enterprises

Land Bank of the Philippines(LBP)- a

government bank
which
provides
financial support in the implementation
of the Agrarian Reform Program(CARP)
of the government

Commercial Bank or Domestic Bank

(KB)- any commercial bank that is
confined only to commercial bank
functions

RA 6048- provides for the charter of the

Al-Amanah Islamic Investment Bank;
authorizes the bank to promote and
accelerate
the
socio-economic
development of the Autonomous Region
of Muslim Mindanao

Thrift Banks (TB)- include savings and

mortgages banks, stock savings and
loan
association
and
private
development banks; function is to
accumulate the savings of depositors
and investing them together with
capital
Stock Savings and Mortgage Bank
(SSMB)- any corporation organized for
the purpose of accumulating the
savings of the depositors and investing
them, together with its capital

Al-Amanah Islamic Investment Bank-

Development
Bank
of
the
Philippines(DBP)- provides loans for
development purposes, gives loans to
the agricultural sector, commercial
sector and the industrial sector
Investment House- any enterprise
which
engages
in
underwriting
securities of other corporations
Financing

Companies-

any

business

Savings and Loan Association (SLA)any corporation engaged in the

business of accumulating the savings of
its members or stockholders and using
such accumulation,
Securities Dealer- any person engaged
in the business of buying and selling
securities for his own account thereby
making a profit from the difference
between his buying and selling
securities
Securities Broker- any person engaged
in the business of effecting securities
transactions
and
earns
through
commission basis
Non-stock savings and loan association
and
cooperative
credit
unionscorporations engaged in the business of
accumulating the savings of its
members which are usually confined to
a well-defined group of persons and
uses such accumulated funds to lend to
its own member-depositors
Building and loan association- any
corporation whose capital stock is
periodically paid by its stockholder
members; purpose is to encourage
frugality and home-building
Pawnshop- refers to a person or entity
engaged in the business of lending
money or personal property, jewellery,
television, radio, camera, appliance,
etc. delivered as a security for a loan
SSS- provides retirement benefits,
funeral
benefits,
housing
loans,
personal loans and calamity loans to
employees who are working in private
companies and offices
GSIS- provides retirement benefits,
housing
loans,
personal
loans,

enterprise where the primary purpose is

to extend credit facilities to consumers
and to industrial, commercial papers or
accounts

emergency and calamity

government employees

loans

to

Pag-ibig- provides housing loans to both

government and private employees
Home Development Mutual Fund

Two problems that reduce willingness to

lend
(1) Adverse selection
(2) Moral hazard

Investment intermediaries
(1) Mutual funds
(2) Finance companies
(3) Money market mutual funds

Elements of transaction costs

(1) Search cost
(2) Time and money

Principal liabilities/ Sources of funds

(1) Deposits
(2) Premiums
(3) Employee and contributions
(4) Shares
(5) Stocks
(6) Bonds
(7) Commercial paper

Benefits of intermediation
(1) Benefits to surplus units
(2) Benefits to deficit units
Benefits to surplus units
(1) Pooling the funds of thousands of
individuals
(2) Overcome the obstacles that
stop savers from purchasing
primary claims directly
Benefits to deficit units
(1) Broaden
the
range
of
instruments, denominations, and
maturities an institution can
issue, which significantly reduces
transaction costs
(2) Increases economic efficiency
(3) Boost economic activity
(4) Elevate living standards
Types of intermediary
(1) Depository institutions
(2) Contractual savings institutions
(3) Investment intermediaries
Commercial banks
(1) Commercial banks
(2) Savings and loan associations
(3) Mutual savings banks
(4) Credit unions
Contractual savings institutions
(1) Life insurance companies
(2) Fire and casualty insurance
companies
(3) Private
pension
funds
and
government retirement funds
(3) Thrift banks

Principal assets/ Uses of funds

(1) Mortgages
(2) Loans
(3) Government securities
(4) Consumer loans
(5) Small business loans
(6) Subscribed share capital
(7) Corporate bonds
(8) Bonds
(9) Stocks
(10)
Money market instruments
Structure of Philippine Financial System
(1) Bangko Sentral ng Pilipinas
(2) Banking Institutions
(3) Non-Bank Financial Institutions
Banking institutions
(1) Private banking institutions
(2) Government banking institutions
Non-bank financial institutions
(1) Private
non-bank
financial
institutions
(2) Government non-bank financial
institutions
Private banking institutions
(1) Expanded commercial banks/
Universal banks (EKB/UB)
(2) Commercial banks (KB)

(4) Rural banks

(5) Cooperative banks
Government banking institutions
(1) Development
bank
of
the
Philippines (DBP)
(2) Land bank of the Philippines
(LBP)
(3) Philippine
Al-Amanah
Islamic
Investment Bank
Private non-bank financial institutions
(1) Investment houses
(2) Investment companies
(3) Financing companies
(4) Securities dealers/brokers
(5) Non-stock savings and loan
associations
(6) Building and loan associations
(7) Pawnshops
(8) Lending investors
(9) Fund managers
(10)
Trust
companies/departments
(11)
Insurance companies
(12)
Venture
capital
corporations
Government non-bank institutions
(1) Government service insurance
system (GSIS)
(2) Social security system (SSS)
(3) Pag-ibig
Thrift banks
(1) Stock savings and mortgages
banks (SMB)
(2) Private development banks (PDB)
(3) Stock
savings
and
loan
associations (SSLA)

Chapter 7: Banking Institutions, History,

Classifications and Functions
According to General Banking Act, the
term bank refers to an entity duly
authorized by the Monetary Board of
the Central Bank that may engage in
the lending of funds obtained from the
public through the receipts of deposits
of any kind and all entities regularly
conducting such operations.
Bankaccumulates
and
allocates
savings from the savers to borrowers;
financial institution given with the
responsibility of accepting deposits
from the general public and lending
these to those in need; serves as
depository of idle funds; serves as
major source of loanable funds
History traces that the banking
practices date back as early as 2000 BC
in the temples of Babylon. Credit
transactions were known during the
reign of King Pharaoh Nebuchadnezzar.
It was in Ancient Greece that banking
attained its height of development
because the Greeks kept traces of good
records. The first known registered
banking institution as recorded in the
history was established in Venice in
1157 AD. During the 17th and 18th
centuries, banking started to develop.

Some of the powerful statesmen and

wealthy private bankers were the
Medicci family in Florence and Fuggers
in Germany.
Rothschild family- during the 19th
century became the most influential
banker in Europe and most probably in
the whole world
Bank of France- organized in 1800 by
Napoleon Bonaparte; became the
dominant financial institution in France
in 1848 when it obtained the sole note
issue privilege
Goldsmiths- attributed to have started
banking; were exercising basic function
of the modern banking system
Bank of Montreal- approved in 28333
was based on the charter of the Bank of
the United States
Bank of Canada- opened in 1835 and
performed the function of a central
bank
Bank of North America- first important
bank in the United States; established
by the Second Continental Congress

Moratorium- means the authorization to

the
debtor
permitting
temporary
suspension of payment or delay of any
action was already used in financial
transactions

The Federal Government chartered the

First Bank of the United States to serve
both the government and public. In
1838, the New York State passed a free
Banking Law.

Bank of Barcelona- established in Spain

in 1401
Bank of Venice- established in 1587
Bank of Amsterdam- 1609

Free Banking- charters could be

obtained without special acts of the
state legislature

Bank of Hamburg- 1619

Bank of Nuremberg- 1621
Bank of Stockholm- 1688
Bank of England- 1964; introduced
modern banking
National Banking Act of 1863- brought
by civil war that brought about the
fundamental change in the structure of
commercial banking in the US
Federal Reserve Act of 1913- this act
recognized the importance of having a
stable money and credit condition to
the health of the national economy
Federal Reserve System- Central Bank
established in the US
Obras Pias- organized by Father Juan
Fernandez de Leon in 1594; a religious
foundation that accumulated large
funds from the legacies of wealthy
individuals who made out wills before
going out on dangerous expeditions,
bequeathing their estates to the
Church, or to lay confraternities; funds
of this foundation were first invested in
loans to traders to finance the galleon
trade in Acapulco, Mexico
Francisco Rodriguez- organized the
Rodriguez Bank which operated more as
a loan association rather than a regular
bank
Gorricho bank
Mariano Tuason
El Banco Espanol-Filipino de Isabelformal banking started in the country
with the establishment of this bank; El
Banco De Islas Filipinas; BPI; first
commercial bank organized in the Far
East; financed the production of abaca,
sugar, tobacco, and copra for export
and established correspondent relation

Greenbacks- irredeemable paper money

financed during the civil war by the
Federal government

Philippine National Bank- organized in

1916 under Act no. 2612; was made the
sole depository of government funds
and had the authority to issue currency
notes just like the Banco EspanolFilipino during the Spanish time
Central Bank Act or RA 265- Central
Bank of the Philippines was created
IMF/CBP
created
conduct
financial

Banking Survey Commissionby the Monetary Board to

an overall review of the
sector of the economy

Joint IMF/WB Mission- to maintain a

financial system that could provide the
needs of a growing and developing
economy
Huhuhuhu kadami nung sa page 216
whatever lol
Expanded commercial banking or
universal banking- this type of banking
involves a combination of commercial
banking with the powers of an
investment house
Expanded commercial bank or unibankmay acquire 100% of the equity of an
investment house, thrift banks, rural
banks and other financial undertakings;
may also invest in equities of
commercial banks and non-related
undertakings with certain limitations
One-stop banking or department store
banking- concept in banking that
enables the clientele to avail all
banking services they need from only
one bank

with Spain and Paris to facilitate trade

and foreign exchange transactions with
Europe
Monte de Piedad y Caja de Ahorros de
Manila- now known as the Monte de
Piedad and Savings Bank; first savings
bank; founded by Father Felix Huertas

servicing these liabilities resulted in

large
CB
deficit
and
exerted
expansionary influences on money, and
consequently on prices.
Commercial Banking Corporation- shall
be any corporation which accepts or
creates demand deposits subject to
withdrawal by check
Only commercial banks may accept or
create demand deposits
Commercial banks may acquire readily
marketable bonds and other debt
securities subject to such rules as the
Monetary Board may promulgate;
members of the clearinghouse
Clearinghouse- located at the Bangko
Sentral ng Pilipinas; international and
local debts arising out of checks and
drafts drawn on local banks and
deposited with other banks are settled
or collected at the Philippine Clearing
House Corporation PCHC
Clearing- process of settling such claims
and counter claims
Universal bank- multiple service bank;
commercial
bank
with
expanded
commercial
functions;
does
the
commercial bank functions as well as
the investment house functions; offers
all sorts of financial services

New Central Bank Act- signed by

President Ramos; RA 7653; for the
establishment
of
an
independent
Central Monetary Authority
The government assumption of certain
liabilities of the old CB will lower
inflation, lower interest rates and the
result to higher economic growth since
the BSP will be relieved of the burden of
of a non-allied undertaking or own a
majority or all of the equity in a
financial intermediary other than a
commercial bank or a bank authorize to
provide commercial banking services
Thrift banks- banks established to
encourage the thriftiness, industry,
frugality, and the accumulation of
savings among the people; should be
organized in the form of stock
corporations
Savings and Mortgage Banks- banks
organized
for
the
purpose
of
accumulating the savings of individuals
and investing them together with their
capital in readily marketable bonds and
debt securities
Blah blah dami kong di tinype kaiyaq po
Stocks savings and loan associationsshall include any corporation engaged
in the business of accumulating the
savings of depositors and together with
its accumulated capital, give these out
for loans and for investment in
securities of the government and any of
its
political
subdivisions
and
instrumentalities
Private development banks- banks
organized
to
expand,
develop,
construct,
and
rehabilitate
our
agriculture and industry

In the Philippines today, the universal

banks are capitalized at 4.5 billion
pesos.
Ordinary
commercial
banka
commercial bank confined to the simple
functions of a commercial bank;
capitalized
at
2.8
billion
pesos;
specializes
in
accepting
demand
deposits, which are withdrawable by
means of checks
Page 220 haha k
Expanded commercial
invest in equity

banks

may

from the landowners and distributes

these to tenants or farmers
Development Bank of the Philippinesgovernment counter-part of the private
development banks; aims to develop,
expand, construct and rehabilitate our
agriculture industry
Al-Amanah Islamic Investment Bank of
the Philippines- Islamic Bank; aims to
promote and accelerate the socioeconomic
development
of
the
autonomous region of Mindanao subject
to the rules of Islamic sharia
Unit bank- a single banking corporation,
which makes and implements its own
policies; only one place of business; US
Branch banking system- multiple office
banking system- bank with branches
and extension offices located in various
places to extend banking services to
other areas of the country
Group banking- unit banks or branch
banks whose majority shares of stocks
are held by a holding company

Rural Banks- organized to promote and

expand the rural economy in an orderly
and effective manner by providing
farmers and small businessmen with
means of facilitating and improving
their productive facilities
Page 226-227 hahahaha k
Land
Bank
of
the
Philippinesestablished
as
a
corporate
and
government instrumentality; to help
implement the land reform in the
Philippines
known
as
the
Comprehensive
Agrarian
Reform
Program CARP; buys farmlands under
the CARP
Under 7721, the Monetary Board shall
allow six (6) foreign banks to enter the
banking system as a branch within a
period of five years.
Depository Function- banks accept
deposits from the public and make
these funds available for lending to
those that need the funds
Primary deposits- deposits in the form
of cash, checks, money orders and
items for collection
Derivative deposits- deposits created
out of proceeds of loans and interest on
deposits
Deposits from the Private Sectordeposits made for the account of
private individuals, partnership and
corporations
Deposits from the Government- public
funds deposited for the account of the
government
Savings deposits- deposit accepted for
safekeeping; evidenced by a passbook;

earns interest
Chain banking- independent unit banks
which are owned by a group of people;
monopoly of the banking business is
the main objective of this banking
system
Privately owned banks- banks owned by
private individuals; main purpose is to
provide commensurate returns of the
investors capital
Government owned banks- owned by
the state or banks with a minimum
private capital
Domestic bank- bank incorporated
under the laws of the country where it
is doing business
Foreign bank- bank incorporated under
the laws of other countries that do
business here

most often for importation of some

commodities
Time certification of deposit- type of
deposit that is evidenced by a
certificate maturing at a definite future
time; carries a higher interest rate than
the savings deposit since the depositor
specifies the maturity date of the
deposit; most often made available for
longer-term investments
SPP- Security Printing Plant
Borrowing- all forms of obtaining or
raising funds through any of the
methods and for any of the purposes
Re-lending- extension of loans by an
institution with antecedent borrowing
transactions

Demand deposit- deposit that may be

withdrawn any time by presenting a
check; aka current account deposit,
checking
account
deposit,
and
commercial account deposit; do not
earn interest
Negotiable
order
of
withdrawal
accounts- aka Negotiable order to
withdraw; savings deposit which can be
withdrawn by a negotiable withdrawal
slip
Term savings account- a savings
account that is not to be withdrawn for
a considerable period of time and
allows the bank to lend it for a longer
term; earns an interest much higher
than that of ordinary savings deposit
Special time deposit- a deposit required
by the government or central bank for a
depositor to maintain with the bank for
a particular purpose;
Partnership- an organization which is
composed of two or more owners who
agreed to conduct business and divide
the profits among themselves
Corporate account- account that is
opened by corporations in the conduct
of its business
Fiduciary account- account opened by a
trustee in behalf of another person
Trustee or fiduciary- a legal person
authorized to take title to and
administer properties for the benefit of
others
Documents are required by the bank in
the opening of a trust account to
establish the authority and identity of
the signatories.

ATM- automated teller machine

Philippine National Bank- first to adopt
the automated teller machine system
PIN- personal identification number
Single-name individual account- the
simplest type of bank account wherein
an individual transacts with the bank
under his own name
Joint account- this account is opened by
two or more individuals; there are two
or more depositors under one account
Joint and account- all depositors have
to
affix
their
signature
in
all
transactions with the banks
Joint or account- any one of the
depositors is authorized to transact with
the bank

Unincorporated Group of Account- an

account that is opened by associations,
social
clubs,
civil
organizations,
professional,
and
charitable
organizations, which are not registered
with the Securities and Exchange
Commission
Inactive Deposit Account (Dormant
Account)- an account which does not
have any activity through deposits or
withdrawals over a period of time
RA 3591- provides to establishment of
the
Philippine
Deposit
Insurance
Corporation (PDIC) which ensures
deposits maintained in member banks
A banking institution does the trust
business. It can be authorized to
engage in the business of a trust
company.
RA 337 or the General Banking Laws

Sole Proprietorship account- an account

that is opened by an individual for his
own business
Partnership account- account opened
by a partnership
Beneficiary- the person whose benefit a
trust is created

Trusteeship- trustor-trustee relationship

Trustor- the person who holds legal title
to the funds and/or property of a trust
Mortgagor- borrower in a mortgage
contract

Trustee- the person who manages the

property entrusted

Mortgageecontract

Bank- as a trustee, the bank is

expected to administer the funds or
property under its custody with skill,
care, prudence and diligence necessary
under the circumstances

Collateral- property pledged

Safe deposit box- rented out by the

bank to a client who would like to have
a safe place to put his important
documents and precious jewelry

bank

in

mortgage

Three domestic banks were allowed to

resume operations during the Japanese
occupation
(1) Philippine National Bank
(2) Bank of the Philippine Islands
(3) Philippine Bank of Commerce
Findings of the study conducted by

IMF/CBP Banking Survey Commission

A bank acts as a collection agent and in
(1) The Philippine Banking System
return for its services rendered, the
had
become
unnecessarily
bank collects a service fee from its
complicated
and
overclients.
fragmented
(2) The emergence of new forms of
financial
intermediation
had
Concentration banking- a system that
affected the price of money and
spreads
collection
of
companys
the distribution of financial
receivables among a number of banks
resources within the economy
located at strategic areas
(3) The Philippine Banking System is
still deficient to support the
As a financial intermediary- banks do
financial
requirement
of
a
not only accept deposits but also
growing
society.
extend loans
Major changes because of the New
Demand or Callable Loan- loan that Central Bank Act
(1) 2 members from government and
does not have a definite maturity date
5 full-time members from the
and therefore, is subject to payment
private sector; Governor of the
anytime the bank deems it payable
Bangko Sentral ng Pilipinas from
the government
Time Loan- type of loan which may be
(2)
Price stability conducive to a
short-term, medium-term or long-term
balanced sustainable growth of
which is payable at a specified future
the economy, maintenance of
time
monetary
stability
and
convertibility of the peso
Character loan- usually short-term
(3) Strengthening of the regulation
and supervision framework for
Secured loan- collateralized loan
banks and quasi-banks
(4)
Abolition of 2 suspense accounts
Foreclosure- a process of enforcing the
Monetary Adjustment Account
lien on the property pledged by selling
MAA and Exchange Stabilization
the property at auction, in order to
Adjustment Account ESAA
recover the money lent and all the
(5) Phase-out
of
fiscal
agency
expenses incurred in the process
function
(6) Phase-out of regulatory functions
over finance companies
(7) Require additional mandatory
(11)
Extend
credit
against
reports to assure accountability
security of jewelry, precious
(8) Financial restructuring of the CB
stones and articles of similar
(9) Imposition of requirements on
nature
trust accounts
(10)
Loans and advances made Further classifications of thrift banks
by the CB to any bank shall be
(1) Savings and mortgage banks
subjected to interest
(2) Stock
savings
and
loan
associations
Presidential Decree No 71, RA 337- now
(3) Private development

amended as RA 1948 states that for the

purposes of uniformity, simplicity and
equality
of
treatment,
banking
institutions in the Philippines shall be
classified in the following general
categories:
(1) Commercial banks
(2) Thrift banks
(3) Rural banks
(4) Specialized government banks of
the Philippines
(5) Offshore banking unit
Commercial bank may either be
(1) Universal bank
(2) Ordinary commercial bank
Powers granted under the General
Banking Act to thrift banks are as
follows:
(1) Accept savings and time deposits
(2) Open
current
or
checking
accounts
(3) Act as a correspondent for other
financial institutions
(4) Act as a collection agent for
government entities
(5) Act as official depository of
national agencies
(6) Rediscount paper with the LBO
DBP and others
(7) Issue mortgage and chattel
mortgage certificates
(8) Engage in quasi-banking and
money market operations
(9) Open domestic letters of credit
(10)
Extend credit facilities to
private
and
government
employees

Services performed by rural banks

(1) Accept savings and time deposits
(2) Open current and checking
accounts
(3) Act as a correspondent bank for
other financial institutions
(4) Act as a collection agent
(5) Act as official depository of
municipal, city or provincial funds
(6) Rediscount paper with the LBP
DBP etc
(7) Extend financial assistance to
private and public employees in
accordance with Section 5 of RA
3779 as amended
(8) May act as trustee over estates
or properties of farmers and
merchants
Specialized government banks of the
Philippines
(1) Land Bank of the Philippines
(2) Development
Bank
of
the
Philippines
(3) Al-Amanah Islamic Investment
Bank of the Philippines
Four foreign commercial banks that
were allowed to operate in the country
(1) Hongkong and Shanghai Banking
Corporation
(2) Bank of America
(3) City Bank
(4) Standard Chartered Bank
Functions of OBUs
The OBU were allowed to engage in the
following transactions
(1) Transactions with non-residents
and or with other OBU

(2) Transactions
with
foreign Three parties in a trusteeship
currency deposit units
(1) Trustor
(3) Transactions with residents other
(2) Beneficiary
(3) Trustee
than FCDU and other OBU
Classification

according

to

form

of

Types of Loans Granted by Banks

organization
(1) Unit bank
(2) Branch banking system
(3) Group banking
(4) Chain banking

(1) Demand or Callable Loan

(2) Time Loan
Two parties in a mortgage contract
(1) Mortgagor
(2) Mortgagee

Reasons why the Philippines adopt the

branch banking system
Other classifications of Bank Loans:
(1) Because we lack capital
(1) According to purpose
(2) Idle funds in one area of the
(2) According to the form on how
country
can
be
properly
credit is granted
employed in other areas
(3) According to maturity
(3) For the convenience of the
(4) According to security
(5) According to release of loan
customers
(6) According to manner of
(4) There is less overhead expense
repayment
to run a branch than to organize
a new bank
According to purpose
(1) Commercial or mercantile credit
Traditional classifications of banks
(2) Investment credit
(1) Privately owned banks
(3) Agricultural credit
(2) Government owned banks
(4) Real estate credit
(5) Personal credit
Classification according to place of
incorporation
(1) Domestic bank
(2) Foreign bank
Functions of a bank
(1) Depository function
(2) Trust function
(3) Collection
and
remittance
function
(4) Loans and discount function
(5) Advisory function
Types of bank accounts
(1) Single-name individual account
(2) Joint account
(3) Sole proprietorship account
(4) Partnership account
(5) Corporate account
(6) Fiduciary account
(7) Unincorporated group of account
According to release of the loan
(1) Lump sum release
(2) Installment release as the project
progress

According to the form on how credit is

granted
(1) Direct loan
(2) Discount loan and rediscount
loan
(3) Overdraft line
According to maturity
(1) Short-term loan
(2) Medium-term loan or
intermediate-term loan
(3) Long-term loan
According to security
(1) Secured loan or collateral loans
(2) Unsecured loan or Character loan

According to manner of repayment

(1) Lump sum basis
(2) Installment basis
Two forms of joint account
(1) Joint and account
(2) Joint or account