Introduction

to
Business Finance
and
Philippine Financial System
OBJECTIVES:
• To describe a brief review of the evolution of
Money

• To enumerate and describe the characteristics of

money

• To discuss the Monetary Standards

 Origin
and
Evolution of Money
BARTER

- exchange of merchandise for

merchandise, without value equivalence.
COMMODITY MONEY

- assumed the role of currency, circulating as an

element of exchange for other product and used to
assess their value
pecunia = (money)
pecúlio = (accumulated money)
= derived from the Latin
work pecus (cattle).

capital (asset) = capita(head)

salário
(salary, compensation, normally in money,
due by the employer for the services
of an employee)
= sal [salt], in Rome, for payment of services
rendered.
METAL

- Used to made utensils and weapons which is

previously made of stone
ANCIENT COINS
PAPER MONEY
Different Shapes
MONETARY SYSTEM

- a set of policy tools and institutions through which a

government provides money and controls the money
supply in an economy.
CHECKS

- An order for transfer of money

MONEY
- any object or record that is generally
accepted as payment for goods and services
and repayment of debts in a given socio-
economic context or country.
FUNCTIONS of MONEY
 Medium of Exchange

Standard of Value

Store of Value

Standard of Deferred Payment

CHARACTERISTICS
of
MONEY
1. DURABLITY
- retains its shape, extended over the period of time

2. DIVISIBILITY
- can be divided into small increments

3. MALLEABILITY
- material should be lend to minting process.
Should be capable of being stamped with proper
design.

4. CONVERTIBILITY
- not to be glossed over in another important
characteristic of good money
KINDS OF MONEY
COMMODITY MONEY

- Appears in metallic form, the face value of which

approximates that of the value of the metal itself.
CREDIT MONEY

- any claim against a physical or legal person that can be

used for the purchase of goods and services
PAPER MONEY
FIAT MONEY

-derives its value from government regulation or law.

The term fiat currency is used when the fiat money is
used as the main currency of the country. The term
derives from the Latin fiat ("let it be done", "it shall be").
LEGAL TENDER

- a medium of payment allowed by law or recognized by

a legal system to be valid for meeting a financial
obligation
 MONETARY STANDARD

- a particular type or kind of standard money

used in the monetary system of a country and to
which other kinds of money are related “uniform
basis”.
 SIGNIFICANCE OF MONETARY STANDARD

1.It is made to serve the domestic requirements

of the country.

2.Owing to the fact that countries must of

necessity trade with other countries, it
therefore becomes incumbent upon the
government of each country to take into
account not only its domestic needs but also
those that relate to the requirements of
international trade.
TWO TYPES OF MONETARY STANDARDS

• Commodity Standard

• Fiat Standard
MONOMETALLIC STANDARD
• Gold Standard
-The monetary system in which the monetary unit is kept at par with
a fixed weight or value of gold.

3 Major Types of Gold Standard

1. Gold Coin Standard

2. Gold-Bullion Standard

3. Gold-Exchange Standard
• Silver Standard

3 Major Types:
1. Silver Coin Standard

2. Silver-Bullion Standard

3. Silver-Exchange Standard
BIMETALLIC STANDARD
 FIAT STANDARD

-refers to a monetary system in which the face value of

the monetary unit is very much higher than that of the
value of the material used as money.
3 types of Fiat Standard:

1. Utopian Paper Standard

2. Involuntary Paper Standard

3. Managed Currency Standard

CREDIT
Why There is an Extension
of Credit?
 Foundations
of a
System of Credit
1. Creditors must have absolute
confidence in the personal
character and in the ability, as
well as willingness, of their
debtors to accept, honor and
settle their obligations.
2. Proper facilities must exist for
performing credit operations
 sources of credit information must
be available
grant of credit – entails the use of
documents to evidence the
existence of credit transactions
between the creditor and debtor
seeking to establish their
obligations to one another.
3. The money standard must be stable.
4. The government must stand
ready to assist the creditor in
enforcing payment of loan
extended to the debtors.
 NATURE OF CREDIT
CREDIT
- the ability to obtain a thing of
value in exchange for a promise
to pay definite sum of money, on
demand or future determinable
time.

= POWER & OBLIGE

POWER
Credit enables the individual to
stretch his purchasing ability, that is,
obtain goods and services which
otherwise the individual would be
without on account of the lack, if not
total absence, of cash at that particular
time.
OBLIGE / OBLIGATION
Credit represents a legal or moral
responsibility to honor his promise or
commitment which has arisen out of a
past transaction.
Characteristics
Of
Credit
1.Use of TRUST
2. Elastic
3. It is a bi-partite or a two-party contract
4. Involves TIME/Futurity
Classes
&
Kinds
of
Credit
1.According to type of USER

1.1. Consumer Credit/Consumption

Credit
- kind of credit extended to
consumers in order to facilitate
the process of consumption or
enjoyment.
 INSTALLMENT CHARGE
1. Confined to durable goods 1. Non-durable
consumer’s goods
2. Title to goods purchased 2. Title possess
will not be passed to the immediately
buyer until the last
instalment
3. Buyer loses every amount 3. Disappeared. During
of money he has already the process of their
paid consumption or use.
4. Goods bought are paid by 4. Pain in one lump
means of a series of equal sum
5. Credit always have to pay 5. Not observed.
“carrying charge” down-
payment – includes interest
& collection charges.

6. Formal credit investigation 6. Not observed.

(buyer) is uncertain by
granting credit.

7. Good bought, covered by a 7. Not observed.

written contract of sale &
agreement .
1.2. Merchantile Credit / Commercial Credit
- type of credit which one business man
may extend to another when selling
goods on time for resale or commercial
use.
- Required only for the length of time it
takes a buyer to process and resell the
goods.
1.3. Commercial Bank Credit
- refers solely to the credit given by
commercial banks to business man
intended to assist them in the operation
of their business.
1.4. Investment Credit
- utilized by a business organization for the
purchased of fixed assets or to carry
minimum business operations.
- consists of advances intended for the
purchase or construction of necessary plant
or equipment.
 2. According to whether merchandise or
money is given

2.1. Merchandise Credit

- The consumer obtain goods or
merchandise in exchange for his
promise to pay them at a later date.
2.2. Borrowing Money
- Consumer likewise confronted with the
need for money which they try to obtain
through borrowing. (From banks to financial
institutions).
 3. According to Purpose

3.1. Agricultural Credit

- consists of those loans which are intended
for the acquisition of fertilizers, pesticides,
seedlings, and any instruments, machinery
and other movable equipment used in the
production, transformation, handling or
transportation of agricultural products.
3.2. Export Credit

3.3. Industrial Credit

- Intended for financing the needs of
industries like logging, fishing,
manufacturing and which involves big
amount of money.

3.4 .Commercial Credit

3.5. Real Estate

- Credit is secured purposely for
construction, acquisition, expansion or
improvement of real estate properties.
 4. According to Maturity

4.1. Short-Term
- Payable within one year from the date of
acquisition

4.2. Medium or Intermediate

- ranges from one year to 5 years in maturity

4.3. Long-term
- Five years up
 CREDIT INSTRUMENTS
refers to a promise, or order, to pay a definite
or determinable sum of money to bearer or to
a specified person or his order.

A document which gives evidence of a credit

obligation resulting from a past transaction which
sets forth the responsibility of the debtor to his credit.
 CLASSES
OF
CREDIT INSTRUMENTS

• Investment Credit Instruments

• Commercial Credit Instruments
INVESTMENT CREDIT
INSTRUMENTS

• BONDS
• SHORT-TERM NOTES
• STOCKS
 BONDS
- are promises to pay the principal as
well as interest to its holder at a certain
specified time indicated in the
instrument
 BASES OF BONDS:
1. Nature of the Issuer – Government, Municipal,
Corporate, Industrial, etc.
2. Nature of Security – Mortgage, Collateral Trust,
Income
3. Maturity – Long-term / Short-term
4. Termination – (payment or redemption) convertible.
redeemable
5. Form of Instrument
6. Purpose – refunding, Construction, Development,
Equipment, etc.
 CLASSES OF BONDS:
1. Coupon Bonds / Bearer Bonds
- principal is payable to the bearer, interest is payable
upon surrender of coupons.

a. Registered Bonds
- have the name of the owner and cannot be
transferred without endorsement

2. Retirement of Bonds
Through CONVERSION – exchanging new security
Through REDEMTION - repayment of Cash
Through REFUNDING – replacing the outstanding
bonds with another issue of
later maturity
 SHORT-TERM NOTES
- Issued to general public
- “notes” – signified obligation maturing within short
period of time and with a limited number of holder

- Eg. Payments on bank loans that have become

due (during the corporation doesn’t yet have cash)
 STOCKS
Permanently invested capital of a corporation
contributed by the owners as “stockholders”
which are evidenced by certificates.
 TYPES OF STOCKS
1.COMMON STOCKS
- receiving only portion of the corporate
income. (Earnings of the corporation)
- no fixed rate of earnings

2. PREFERRED STOCK
- assets / as to dividends
- (holder) right to a fixed dividend
 COMMERCIAL CREDIT
INSTRUMENTS

(Functions as the substitute for money)

 TYPES
1. PROMISES TO PAY (INVOLVES MAKER AND PAYEE)

a. BOOK ACCOUNTS / “OPEN BOOK ACCOUNTS”

(debiting the customer with the amount involved)
b. BANK DEPOSITS (use of bank book)
c. PROMISSORY NOTES
- a written promise of one person to pay another
a definite sum of money at a certain future time
* NEGOTIABLE
- by endorsement , be discounted, sold or
used as collateral in the finance market
* NON-NEGOTIABLE
- no flexibility
Cont. Promissory Notes

ONE-NAME PAPER
- when promissory note is signed by one
individual

TWO-NAME PAPER
- note must be signed by another
responsible and trustworthy individual
 ORDERS TO PAY

• DRAWER
- the party ordering that payment be made

DRAWEE
- the party ordered to make payment

PAYEE
- the party to whom payment is to be
made
 CHECK
A written order drawn by a depositor upon
a bank directing it to pay on demand a
specified sum of money to the bearer or to
the order of some person or corporation
named on the face of the check the
amount against his deposit account.
Payment shall be made
= “Pay to (name)…. / order”

Drawn in favor of the depositor

= “Pay to (self/order)”
= Pay to cash/order”

“or order” = makes it possible for any holder of

the check to transfer it by endorsement
KINDS OF
CHECKS
 OPEN CHECK
(ORDER / BEARER CHECK)

- one without a crossing

– does not have to be presented through
a banking account

- payable to cash
 CROSSED CHECK
- Cannot be presented to the bank for cash

- deposit to the account of the payee

- Recognize (to parallel) lines (top left hand

corner)
Cont. Crossed Check

GENERAL CROSSING
- // lines with or without the word “and co.” or
not negotiable
eg. Backpay

SPECIAL CROSSING
- indicates the name of a particular bank written
across the face of the check
- can only be paid into an account at that
particular bank
eg. ADNU (Checks)

“not negotiable” - theft

 CERTIFIED CHECK
Check which has been certified by the bank official with
respect to sufficient of funds covering the amount
indicated on the face of the instrument

Guarantee that checks will not bounce

Used commercially

Stamped on the face of the check with signature of

bank official
CASHIER’S CHECK / MANAGER’S
CHECK

Bank’s order to pay drawn upon itself and

signed by the cashier, payable to the
person or firm designated by the
depositor
 POST-DATED CHECKS

Checks issued by the drawer showing a future

date

Cannot be paid before the date

 STALE CHECKS

Check which is not presented to the bank for

cash payment nor deposited to the payer’s
account after 6 months from the date it bears

--- the payee should request to drawer to issue

a new check for replacement
 OVERDRAFT CHECK
drawn against a depositor’s account where
balance is not sufficient to pay the check.

BOUNCING CHECK
An instrument drawn against “no fund”, cases
like the depositor has closed his account with
the drawee bank.
 ADVANTAGE

DISADVANTAGE