Bank Credit

Instruments
FINBANK

What is Credit Instrument?

Documents describing details of credit
and debit
Provide a written means from future
reference
describing
terms
and
conditions of any debit and loan
May be an order for payment of money
to a specified person or it may be a
promise to pay the loan
Cheques, bills of exchange, bank
overdraft, etc.

Negotiability of Credit Instruments

When treating credit instruments, it should be

borne in mind that not all are negotiable
instruments.
Qualifications of Credit Instruments
It must be in writing and signed by the drawer
or maker.
It must be made payable to order or to bearer.
It must be payable on demand or at a future
determinable time.
There must be an unconditional order or
promise to pay.

General Division of Credit Instruments

Promises to Pay
Orders to Pay

Promises to Pay

Promissory Note
Simplest form of credit instrument
An unconditional promise of the maker
to pay a sum certain in money to order
or to bearer on demand at a future
determinable time.
Collateral promissory note the note is
secured

Promises to Pay

Bank Note
Unconditional promise of a bank to pay
a sum certain in money on demand.
Used as a substitute for money and is
exchanged in standard money at par,
provided that the bank issuing it enjoys
excellent credit standing
A direct obligation of the issuing bank

Promises to Pay

Banks Acceptance
Contains the banks promise to pay a
draft that is presented to it for
acceptance
The word ACCEPTED is stamped on the
face of the draft and it is duly signed by
the banks representative.
The date of acceptance is also indicated.

Promises to Pay

Letter of Credit
A promise of a bank to honor drafts
drawn against it or for its account.
A bank substitutes its credit for that of
the accredited buyer and promises to
pay the beneficiary or his representative
upon presentation of a draft, subject to
the conditions in the letter of credit.

Bank Notes Distinguished from

Standard Money

Practically like money

Represents private bank rather than the
states credit
All appearances and the intent of usage, it
resembles money closely.
In some instances, the note is declared as
legal tender either fully or limited scale.
Fiduciary in nature and their circulation is
dependent upon the credit of the issuing
bank

Bank Notes Distinguished from

Standard Money

Desirable characteristics of money are also

found in bank notes.
Necessitate final redemption into standard
money
Represents the government notes
Issue is limited to the extend of lawful
restrictions on the issuing banks capital as
well as the trust and confidence the public
has on it.

Bank Notes Distinguished from

Deposits

The circulation of bank notes and deposits

necessitates legal reserves.
Bank notes circulates longer while check drawn
against deposits could immediately be presented
for payment when endorsed.
When writing a check: any amount covered by
existing deposits may be drawn (except in
overdrafts); in bank notes, there are uniform
denominations.
Deposits necessitate the use of checks to circulate
them; bank notes constitute the means of payment.

Bank Notes Distinguished from

Deposits

In case of deposits, the bank becomes a

debtor to the depositor or the note holder.
Where a check is endorsed for negotiation, a
bank note is passed on to the next holder
without documentation.
In the issue of checks, an aggrieved party
has the right of recourse against endorsers
except in some instances.
In case of bank notes, there is no such right
of recovery.

Orders to Pay

Bill of Exchange
An order of one person/ bank to another
person or bank to pay a third person a
sum certain in money or demand or at
some specified future time.
Also in the form of a check or a draft.

Orders to Pay

Check
An order of a depositor to his bank to pay a
third person or himself a sum certain in money
on demand.
Commonly known as personal check.
Cashiers check banks cashier is the drawer
of the check
Managers check Manager of a business
concern is the drawer

Orders to Pay

NOW Account
Negotiable Order of Withdrawal
Earn interest and account holders can write as
many NOW checks as they want on the account
Has a feature of a savings deposit as it earns
interest
Like current/ checking account it offers
depositors the convenience od issuing checks for
payments.
No need for a passbook in depositing or
withdrawing

Orders to Pay

Draft
Order to pay and is a bill of exchange
Classification
Demand drafts paid as sight upon
presentation
Time drafts payable at future determinable
time
Commercial or trade draft when the draft is
drawn by a merchant against another
Bank draft Drawn by a bank against
another bank

Promises to Pay Versus

Orders to Pay

Promise to Pay

Orders to Pay

Two parties the maker, Three parties the

the payee
drawer, the drawee and
the payee
Contains a promise and Command
and
the
has
the
personal execution may or may
element to comply
not materialize

Checks and Drafts Distinguished

Both are bills of exchange since both are

negotiable instrument
Three parties involve in a check or in a
draft Checks
Drafts
Drawn against deposit
Payable on demand

Subject to certification
Drawn on bank

Orders to pay
Payable
either
on
demand or at a future
determinable time
Subject to acceptance
Drawn on a merchant or
a bank

Money Market Instruments

Treasury Bills
Short-term securities issued by country's
Treasury
Reduce a banks ability to lend to its clients
leading to a contraction of the money supply.
Consists of an obligation to pay the bearer the
face value of the bill upon a given date.
Bill is tradable

Money Market Instruments

Bankers Acceptance / Letter
of Credit
Have their origin in trade bills
issued by merchants
Important
money
market
instrument
Time draft and accepted by a bank

Money Market Instruments

Negotiable
Certificate
Deposit (NCD)

of

Like fixed deposits except they are

bearer documents
Offer a market related rate if
interest are completely liquid
because they can be negotiated
during the term of the deposit.

Money Market Instruments

Commercial Paper (CP)
Short term CP is a debt instrument
commonly issued by corporations
to fund a temporary capital
requirement.
Usually matures within 1 year

Money Market Instruments

Bank Guarantees
A guarantee by bank is a written
undertaking wherein bank agrees
to make stipulated payments on
your behalf should you fail to fulfill
or carry out specified terms of a
contract.

Significance of Bank Credit

Instruments

Facilitate to the dealings in credit

Bring out losses on the part of the
bank
Public
confidence
in
the
soundness of banks and their
patronages of the banking system
as a whole shall be strengthened.

 Timothy Bunyi
Nia Floralde
Maria Jana Minela Ilustre
Kathrina Patea
Mariecon Robles