BANKING AND CREDIT

Banks are one of the most important factors that play a significant part in the promotion of trade both local and international. Functions of Banks Banking and Exchange- The business transactions of modern communities are greatly restricted without the aid of the banks which supply money or credit to affect the exchange of goods. Deposit Function of Banks- Banks receive other peoples money and give a certificate or passbook which indicates that they are obligated to pay money under certain conditions. Lending and Discount Function- A second important function of banks is to lend money and to discount notes or bills of exchange. Remittance and Collection Function- The most and common way of paying money is through the use of postal money order or by sending the actual money by registered mail.

The Nature of Credit The Meaning of Credit- Credit may be defined as the power to obtain goods with the promise to pay for them at some future time. Basis of Credit- The soundness of credit depends entirely upon the ability and willingness of the debtor or borrower to pay the debts when it falls due.

Kinds of Credits Commercial Credit- Commercial credit is usually in the form of short-term loans. Investment Credit- It is a long-term credit as contrasted with commercial credit which is extended in the form of short-term loans. Agricultural Credit- Agricultural credit extends for a much longer period than commercial credit. Public Credit- The government borrows heavily in order to finance large undertakings like the construction of roads, bridges, harbors and piers, public buildings and many other public projects that need large outlays. Bank Credit- The essential nature of bank credit is the same as that of any other credit, but there is one important difference from other kinds of in that the effectiveness of bank credit is greater because of its broader power of exchangeability.

Commercial Banking Bank Notes- form of paper money and they supplement what is issued by the government in the form of treasury certificate. Bank Deposits- is often thought that a bank deposit is cash left with the bank for safekeeping. Bank Reserves- Banks are required by law to keep a certain amount of reserves which is expressed in the form of percentage of cash to deposits.

Non-commercial Banking The Savings Bank- Commercial banks exist primarily to finance trade and industry by the familiar method of creating credit. The trust Company- is a type of financial institution that is little known in the Philippines. Investment Banking- is another form of non-commercial banking which is usually concerned with the business of producing new investment securities. Consumptive Credit Institutions- Usurers take as security for loans an assignment of the wages or salary of their customers. In a few cases, loan sharks extend credits on te promissory note of the borrower, unsecured or with a co-maker.

Summary Of Chapter XVIII

(Banking and Credit)

Janica O. Flores II- CTM Prof. Arnold Germina