CREDIT INSTRUMENTS

T.I.P. Q.C.

CREDIT INSTRUMENTS
A document
Evidencing the existence of a credit obligation
Defines the responsibility of the debtor to the
creditor
Right of creditor to collect from the debtor on the
date assigned

It has developed a commercial need.

Loans

BROAD CLASSIFICATIONS
General Acceptability
- widely acceptable

- accepted only by a few people

- without questioning the

integrity of person
offering it.

Limited Acceptability
a. Investment purpose - stock

certificates/bond/money market

b. Commercial purpose

- A credit money which

are bank notes or

-Promise-to-pay or order-

to pay

treasury certificates

* Promissory notes

(representative money fully

deposits
backed by gold reserves or

financial institution
Letters of credit/Open Book

fiduciary paper money partially

money
backed by gold reserves)

orders

* Checks/drafts and

CREDIT INSTRUMENTS FOR

INVESTMENT PURPOSES
Stock certifcates owns a corporation
(Preferred/Common)
Bond Certificates indebtedness of Corp. to
bondholders
Kinds Debenture (unsecured bonds issued
against general credit standing of issuer) Higher
interest rates/risk
- Collateral Trust are secured by a pledge of
corporate stock and bonds ; securities offered by
collaterals
- Mortgage are indebtedness secured by a
mortgage on real properties of the corporation.
Sale of properties as payment

KINDS OF BONDS

Registered Bonds one which is issued in the name of a particular

person or entity. Bondholders name registered in the books of
corporation.
Guaranteed Bonds bonds whose principal and interest payments are
guaranteed by a company other than issuing corporation. Arise during
reorganization and consolidation.
Convertible - could be exchanged with other securities with a rate and
time of conversion
Redeemable subject to call or puchase before due date
Serial single issue but are divided into groups of different maturity
dates and possible variable terms and conditions
Income interest payments of bonds are fixed obligations of the corp.
regardless earnings
Coupon detachable coupon which evidence interest obligations
payable at specified periods
Profit sharing allowed to participate in the earnings of the company in
addition to interest payments

MONEY MARKET BILLS

(INVESTMENT PURPOSE)
Negotiable financial instruments bought and sold in the
market.
Money market is a meeting place for users and suppliers of
short term funds
Transactions are consummated with a price.
Price of money is the interest rate charge for its use.
Parties to a money market transaction
- Fund users (companies with high credit rating that
needs funds)
- Fund suppliers (individuals or corp., with excess
liquidity who are looking for investment outlets)
- Brokers (individuals or institutions engaged in buy and sell
of money market instruments.Profit on difference of buy and
sell rates.

KINDS OF MONEY MARKET

INSTRUMENTS
Interbank loans - loans paid upon demand or call by the
leading institutions. No definite maturity dates.
Lending banks earn from excess reserves. Use
overnight funds to meet daily reserve needs. Uses call
tickets or call slips.
Promissory Notes called the Dealer papers. Short
term indebtedness issued by institutions as direct
obligors. It facilitates financing of corporations.
Repurchase Agreement Papers sold by dealers to
buyers at an agreed price. Dealer undertakes to buy the
same paper from the buyer at specified future time.
Certificate of Assignments evidenced by lawful
ownership of the holder to the extent of the Peso value
indicated on the face amount

KINDS OF MONEY MARKET

INSTRUMENTS
Certificate of Participation - lawful ownership of holder to the
extent of peso value indicated on the face of instrument. There is
primary and secondary liability since funds are invested or
reinvested by the trustee. Trustor liable for losses.
Commercial papers unsecured promissory notes issued by
corporations that use the proceeds to finance short-term working
capital needs. Issuers are presumably the highest quality firms since
neither insured or backed up by collaterals.
C.B.C.I. tax free and earn reasonable rate of interest. It is eligible
for reserves and use as collaterals.
Treasury bills bearer notes or debt instruments sold every week at
a discount rate by the CB through competitive action.
D.B.P. Progress Bonds issued by DBP and secured by their assets.
Other government securities PW and Ed bonds, LBP, Treasury
notes, Treasury bills, Bonds, ACA notes, EPZA, socio economic,
premyo savings bank, biglang bahay , NFA, NDC, LRT notes,
Bahayan

DEALERS AND INVESTORS IN

MONEY MARKET
Dealers Investors__________
Commercial banks
- Individual investors
Savings bank - Trust and Pension Funds
Investment Houses
- Government Insurance
Finance Companies
SSS/GSIS
Securities Dealers - Private Insurance Company
- Government /Private Corp.
- Lending Investors
- National Government
- Others like DBP/LBP/Phil
Amanah

CONCEPTS
Dealer an intermediary or a party to money
market securities
Broker not a party to the transaction; acts as
an agent for his clients who either are buyers or
sellers
Underwriter a dealer who handles new lines of
securities
Transactions in the primary market involve the
issuance of new securities.
Transactions in the secondary market are
confined to already issued and outstanding
securities.

CREDIT INSTRUMENT FOR COMMERCIAL

PURPOSES

Promise to-pay
Order-to-pay
involves two parties
involves
three parties
*maker or debtor and
*drawer who orders
payment
*payee or creditor
*drawee the party
ordered to pay
*payee is receiver of
payment

PROMISE TO PAY INSTRUMENTS

Promissory Note written promise of payment of

one person to pay another in the future
It can be negotiable or transferable and nonnegotiable or non-transferable
Letter of credit is a letter made by one bank to
another bank whether domestic or foreign. It cab
be commercial (international trade) or traveler
(instead of travelers check) LC.
Open Book Account shown as sales slip or
invoice, delivery receipt or signature
acknowledging debt.

ORDERS TO PAY INSTRUMENTS

Checks are commonly used bills of exchange. It is an order of a

depositor to his bank requesting to pay certain amount of money
to a person named or bearer.

Crossed check bears two parallel lines which can not be encashed
Post dated check shows a future date
Stale check is not encashed within a reasonable time.
Managers check/cashier/treasurers check is a check drawn against the
funds of a bank and drawn by a bank official.
Bouncing or rubber check is a check without sufficient funds
Counter check is used by a depositor who has forgotten his check or
close a checking account.
Certified check depositors own check certified by bank.
Falsified or forged check which has been deliberately imitated.
Personal/Commercial check is used for personal expenses
Cancelled check is a check cancelled due to mistakes.
Returned check for various reasons like figure is different from amount,
wrong date

GIRO SYSTEM

Technique in credit transaction which uses electronics.

Draft is a bill of exchange which is an unconditional order
made by the drawer requesting the drawee to pay the payee
a sum in a determinable future time.
* Drawer may or may not have funds with the drawee.
* Drawee may be a bank or person
* The words To before drawees name is found
* Kinds of Draft Demand and Time/Bank and
Commercial/Acceptance/Documented/Clean Drafts
Money Order Bank money order which order of one
bank to another bank to pay; Postal money order where
order of a post office to another post office to pay certain
amount on demand.