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Financial Management > 2nd Term > Flashcards

2nd Term Flashcards

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1
Q

What is the definition of credit?

A

The power or ability to obtain money, goods, and services at the present time in exchange for a promise to pay at a future determinable time.

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2
Q

What is the Borrower’s View of credit?

A

The borrower’s ability to obtain goods, services, or money in exchange for a future promise to pay.

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3
Q

What does the Lender’s View on credit emphasize?

A

The trust and confidence of the lender on the borrower’s ability and willingness to pay.

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4
Q

How do economists view credit?

A

As the exchange of actual reality against the future probability.

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5
Q

What does the Legalistic View of credit create?

A

A legal right in favor of the creditor against the debtor who is under obligation to pay.

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6
Q

According to anthropologist David Graeber, when did the practice of extending credit date back to?

A

Around 3500 BCE.

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7
Q

What are the main functions of credit?

A
  • Serves as a medium of exchange and a substitute for money
  • Facilitates production and consumption of goods
  • Provides a faster, safer, and more convenient way of obtaining goods and services
  • Elevates the moral standard of people
  • Encourages savings
  • Enables businesses to gather large capital for large-scale production
  • Allows wealth to be fully utilized
  • Helps in expansion and contraction of the money supply
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8
Q

What are the characteristics of credit?

A
  • Credit as a Bipartite Contract
  • Credit as a Pecuniary Contract
  • Credit as a Fiduciary Contract
  • Credit Involves Risk
  • Credit Involves Futurity
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9
Q

What is the significance of credit in production?

A

Firms use credit to finance operations depending on capacity and willingness to expand credit when profitable opportunities appear.

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10
Q

How does credit promote full employment?

A

Consumers buy beyond their cash capability, leading to increased consumption and increased employment.

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11
Q

What are the classifications of credit?

A
  • Personal Credit
  • Commercial or Mercantile Credit
  • Bank Credit or Bank Loan
  • Export and Import Credit
  • Investment Credit
  • Agricultural Credit
  • Industrial Credit
  • Real Estate Credit
  • Government or Public Debt
  • Secured or Unsecured Credits
  • Short-term, Medium-term, and Long-term Credits
  • Direct Loans, Discount Loans, Credit Lines
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12
Q

What is the purpose of the Truth in Lending Act (RA No. 3765)?

A

Protects consumers against unfair billing practices and requires creditors to provide key information before transactions.

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13
Q

What are the criteria for granting personal credit?

A
  • Employment and personal resources
  • Wealth and income
  • Salary, expenses, and family size
  • Paying habits and occupation
  • Length and stability of employment
  • Duration of residency
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14
Q

What are the types of Agricultural Credit?

A
  • Crop Loan
  • Livestock Loan
  • Agricultural Time Loan
  • Commodity Loan
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15
Q

What is the 5 Cs of Credit?

A
  • Character
  • Capacity
  • Capital
  • Collateral
  • Condition
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16
Q

What can improper credit use lead to?

A

Unproductive consumption, inflation, excessive money supply, and overstimulated business activity.

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17
Q

What are the sources of credit?

A
  • Banks
  • Financial institutions
  • Retail Stores
  • Credit Unions
  • Individual Money Lenders
  • Insurance Companies
  • Sales Finance Companies
  • Pawnshops
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18
Q

What is a Credit Instrument?

A

A document evidencing the existence of an obligation which defines the responsibility of the debtor towards his creditor.

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19
Q

What are the classifications of Credit Instruments?

A
  • Credit Instruments with General Acceptability
  • Credit Instruments with Limited Acceptability
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20
Q

What are the types of bonds in the Philippines?

A
  • Government bonds
  • Corporate bonds
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21
Q

What is a Promissory Note?

A

A written promise of one person to pay another a sum certain of money on demand or at a determinable future time.

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22
Q

What is the purpose of a Letter of Credit?

A

To request a bank to honor drafts drawn against it in behalf of a third party under specific terms.

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23
Q

What are the two main types of Money Market Bills?

A
  • Interbank Call Loans
  • Commercial Papers
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24
Q

What is the primary market in the context of money market transactions?

A

Involves the issuance of new securities.

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25
What is the role of a broker in a money market transaction?
Acts as an agent for his client who is either a buyer or seller.
26
True or False: A secured promissory note is guaranteed with properties of value.
True
27
Fill in the blank: Credit extended between businesses is known as _______.
[Commercial or Mercantile Credit]
28
What are secured promissory notes?
Guaranteed with properties of value.
29
What are unsecured promissory notes?
Depend upon the character of the borrower.
30
What is a Letter of Credit?
A letter made by the bank to another bank requesting to honor drafts drawn against it in behalf of a third party under specific terms.
31
What are Open Book Accounts?
A mere entry made in the ledger of the creditor to show the existence of a credit transaction.
32
What three parties are involved in Orders to Pay?
* Drawer * Drawee * Payee
33
What is the most used bill of exchange for satisfying credit obligations?
Checks.
34
What is a crossed check?
A check bearing two parallel lines indicating it cannot be presented to the bank for encashment.
35
What is a post-dated check?
A check that shows a future date and can be paid or deposited on that date.
36
What is a stale check?
A check which is not encashed within a reasonable time.
37
What is a Manager’s Check?
A check drawn against the funds of the bank and drawn by a bank official.
38
What defines a bouncing or rubber check?
A check issued without sufficient funds or drawn against uncollected deposits.
39
What is a certified check?
A depositor’s own check which the bank certifies.
40
What is the difference between a falsified check and a forged check?
* Falsified Check: Deliberately initiated to deceive. * Forged Check: Has an imitated signature.
41
What are personal checks used for?
Defraying individual or personal expenses.
42
What are business checks used for?
Defraying business establishment expenses.
43
List advantages of checks.
* Easy and safe means of paying. * Easily negotiated. * Convenient for large payments. * Drawer can stop payment in case of loss. * Bank responsible for forged checks paid. * Cancelled checks may serve as receipts.
44
List disadvantages of checks.
* Not readily accepted if the drawer does not know the payee. * Drawers must track deposits to avoid bouncing checks. * Carelessness may result in forgery. * Many swindling cases involve checks.
45
What is a draft?
A bill of exchange which is an unconditional order made by the drawer requesting the drawee to pay the payee a sum certain in money.
46
How does a draft differ from a check?
In a draft, the drawer may or may not have funds with the drawee; in a check, the drawer must have funds with the bank.
47
What is an acceptance draft?
A time draft which necessitates the acceptance of the drawee.
48
What is a banker's acceptance draft?
Accepted by a bank.
49
What is a documented draft?
Drafts that require accompanying documents when presented for payment.
50
What is a bank money order?
Order of the bank to another bank to pay a person named therein a sum certain in money on demand.
51
What is the Negotiable Instruments Law?
An instrument is negotiated when transferred from one person to another, constituting the transferee as the holder.
52
What are the requisites for negotiability?
* Must be in writing and signed. * Payable on demand or at a future determinable time. * Payable to order or to bearer. * Must contain no conditions. * Name of the drawee must be indicated with certainty.
53
What is a special or full endorsement?
Specifies the name of the person to whom the instrument is made payable.
54
What is an endorsement in blank?
Specifies no endorsee; done by affixing one’s signature on the instrument.
55
What is a restrictive endorsement?
Prevents further negotiation of the instrument.
56
What is a qualified endorsement?
Constitutes the endorser a mere assignor of the instrument.
57
What is a conditional endorsement?
The person required to pay may disregard the condition and make payment whether fulfilled or not.
58
What is the basic function of the financial system?
To transfer resources from those with excess funds to those who require more funds for investment.
59
What do financial intermediaries do?
Act as middlemen between two parties in a financial transaction.
60
List examples of financial intermediaries.
* Banks * Insurance companies * Financial advisers * Credit unions * Mutual funds/investment trusts
61
What are primary claims?
* Money market instruments * Government securities * Commercial paper * Corporate and municipal bonds * Mortgages * Common stocks
62
What are secondary claims?
* Issued by banks * Life insurance companies * Mutual funds
63
What is asymmetric information?
Occurs when one party possesses greater material knowledge than the other.
64
What is adverse selection?
Occurs before the transaction when one party lacks relevant information.
65
What is moral hazard?
Occurs after the transaction when behavior changes undesirably due to lack of incentive to guard against risk.
66
What are transaction costs?
Money and time spent carrying out financial transactions.
67
List benefits of financial intermediation for surplus units.
* Pooling funds to purchase primary claims directly. * Less risky.
68
List benefits of financial intermediation for deficit units.
* Broaden the range of instruments, denominations, and maturities. * Reduce transaction costs.
69
What is the role of Bangko Sentral ng Pilipinas (BSP)?
* Supervises and regulates the financial system. * Maintains price stability. * Promotes monetary stability and convertibility of the peso.
70
What are the key policy priorities of the BSP?
* Stable financial system for economic growth. * Digitalization for efficiency and inclusivity. * Sustainability for long-term benefits.
71
What is a universal bank?
Performs investment house functions.
72
What is a commercial bank confined to?
Commercial banking functions.
73
What does the Land Bank of the Philippines support?
Agrarian reform.
74
What is the total asset growth of the Philippine financial system from 2005 to 2023?
From P4.4 trillion in 2005 to P25.17 trillion in 2023.
75
What is the BSP's incentive for banking system consolidation?
Moratorium on new branches to encourage mergers.
76
What is the impact of loan provisioning on short-term profitability?
Affects short-term profitability but expected to recover.

Financial Management (1 decks)

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