Valdueza, John Karl A.

BSBA II -FM

1.Explain credit practice during pre- Spanish time.

Until the Spanish conquerors arrived, the Philippines had been conducting trade with nations like
China, Japan, Sumatra, India, Arabia, Siam, Borneo, Java, the Moluccas, and other East Indian
islands. During that time, trading with outsiders was conducted via the barter system. The
Europeans bought porcelain, silk, and ivory in return for the Filipinos' natural goods like cotton,
pearls, betelnuts, sinamay fiber, and the like. Filipino traders were renowned for their integrity
and stellar track record of credit.

2.Why is the galleon trade a blessing in disguise to our natural resources?

Our ancestors were already doing trade with China, Japan, Thailand, India, Cambodia, Borneo,
and the Moluccas before the Spaniards arrived in the Philippines. Manila developed became the
hub of trade in the East as a result of the Spanish government's continuous commercial ties with
these nations. All nations other than Mexico were barred from Manila's ports by the Spanish. The
Manila-Acapulco Trade, also referred to as the "Galleon Trade," was thus established. The
government had a monopoly on the galleon trade. There were only two galleons utilized; one
traveled 120 days at sea from Acapulco to Manila carrying 500,000 pesos worth of cargo, while
the other traveled 90 days at sea from Manila to Acapulco carrying 250,000 pesos worth of
cargo.

3. What are obras pias?

Obras Pas, charitable foundations that were started during the colonial era and persisted
through the first half of the nineteenth century, supported chaplaincies, hospitals, convents,
missions, and schools. The word is also used to refer to clauses in wills that establish
everlasting masses for the souls of the deceased and their family members to rest in peace.
When the church devised the system by which the money may be invested in business, urban
real estate, or agriculture, these turned into obras pas.

4. What are the credit programs of the American Era?

British merchants provided the credit that supported trade between England, Scotland, and the
American colonies throughout the colonial era. Although many financial instruments were
used, including bills of exchange, notes, bonds, and book credit, it was the element of trust,
based on truthful communication between businesspeople, people, and families, that held this
extensive mercantile credit system together.1 For instance, the Boston-based Jackson and Lee
families built trading networks that extended to the West Indies, the Far East, and India after
the War of Independence. Their social and business networks persisted long into the
nineteenth century and connected them to other well-known Boston families. The state of the
economy was also quite important. From the middle of the 18th century onward, merchants
faced greater rivalry, therefore they offered more credit to draw clients.

5. Give the causes of the failure of the credit program before world war II.

 The 1929 stock market collapse. The US stock market had an unprecedented boom in
the 1920s. As stock prices reached record highs, buying stocks became regarded as a
simple method to make money, and even those with modest financial resources lent
against their homes or utilized a large portion of their disposable income to do so. By
the end of the decade, hundreds of millions of shares were traded on margin, which
means that the loans used to cover the cost of the acquisition were paid back with
gains from rising share prices. In October 1929, when prices started their inescapable
drop, millions of overextended owners panicked and hurried to sell their holdings,
accelerating the decline and causing more panic.
 Banking panics and a decline in the money supply. The United States had four
prolonged banking panics between 1930 and 1932, during which a sizable number of
bank clients simultaneously tried to withdraw their cash deposits out of worry for the
viability of their banks.
  The benchmark in gold. The gold standard undoubtedly contributed to the Great
Depression spreading from the United States to other nations, regardless of how it
affected the country's money supply.
 Lowering of tariffs and lending abroad. While the American economy was still
growing in the late 1920s, lending by American banks to foreign nations decreased, in
part because of the country's relatively high interest rates. Certain borrowing nations,
particularly Germany, Argentina, and Brazil, whose economies experienced a slump
even before the start of the Great Depression in the United States, benefited from
contractionary effects as a result of the decline.

6. Explain the nature of the credit program immediately after the war.

Several emerging nations gained independence from their erstwhile colonial powers after
World War Two. Leaders of liberation movements frequently asserted that colonialism was to
blame for the continuation of subpar living conditions in the colonies. As political
commitments had been made, economic growth after independence became a goal of policy in
addition to the humanitarian desire to improve living standards. It was believed that failing to
make progress toward development would be seen as a failure of the independence struggle.
The same comparable view that the industrial countries' economic dominance had impeded
their growth was adopted by developing nations in Latin America and others that had not
been, or had only recently been, colonies, and they, too, joined.

7. Define credit, credit instrument and credit system.

Credit- The ability to borrow money or use goods or services with the understanding that
you'll pay back later is known as credit. Lenders, retailers, and service providers (collectively
known as creditors) grant credit based on their belief that you can be relied upon to repay the
money you borrow, as well as any finance charges that may be applicable. To the extent that
creditors think highly of you, you are said to be creditworthy, or to have "good credit."

8. What is an ideal credit system?

A credit score, which measures a person's propensity to repay debt and runs from 300 to 850,
is a numerical rating. A borrower who has a higher credit score is considered to be less risky
and more responsible. Credit ratings are frequently used to estimate a person's chances of
paying back debts including loans, mortgages, credit cards, rent, and utility bills. Credit scores
can be used by lenders to assess loan eligibility, credit limit, and interest rate.

9. Explain the elements of credit.

Capacity. To evaluate capacity, or your ability to repay a loan, lenders look at revenue,
expenses, cash flow and repayment timing in your business plan. They also look at your business
and personal credit reports, as well as credit scores from credit bureaus such as Equifax,
Experian and TransUnion. This is because the way a person handles personal credit and their
own credit cards often shows how he or she will manage business credit. Another important
metric is debt-to-income ratio, or DTI, which describes your outstanding debt compared to how
much you earn. The lower your DTI, the better your liquidity, and the more likely you’ll keep up
with timely payments.

Capital. To get a line of credit, you’ll need to show that you have capital—some of your own
money or money from partners—that you can put toward startup or acquisition costs. Think of it
as a down payment to show you’re serious and capable.

Collateral. If you fall behind on loan payments, financial institutions want to make sure you
have collateral, or another source of repayment for the loan. Your loan application should
include real estate or other things that could be sold if you fall behind on debt payments.

Conditions. Lenders want to be sure there’s a market for your business. Make sure your business
plan proves that you will be successful based on economic conditions, competition, industry type
and your history as a small business owner.

Character. This includes your education history, business background and personal credit
history. Include any references or other information about your financial situation. It helps if you
and your staff have a good reputation in your industry.
10. What are the bases of credit? Which is the most important basis? Why?

Although each financial institution has its own process for determining a borrower's
creditworthiness, both personal and business credit applications frequently include the five Cs
of credit. Capacity, or more simply the borrower's ability to produce enough cash flow to pay
interest and principal on the loan, is typically seen as the most significant of the five factors.
But candidates who score highly across the board are more likely to be offered larger loans
with better terms for repayment as well as lower interest rates.

11. Where do you get information on the credit worthiness of borrowers?

 Assess a Company's Financial Health with Big Data

Big data is helping companies improve the efficiency of their credit departments, now
empowered by tools that substantially reduce the time required for critical tasks. Trade credit
insurance is a prime example of how companies can easily obtain more customer data to improve
credit processes.

 Review a Businesses’ Credit Score by Running a Credit Report

Another useful way to determine the creditworthiness of a customer is with a business credit
report to get their credit rating. This report illustrates a business’s ability to pay invoices based
on its payment history and public records. The credit report provides a profile about the business,
financial data like annual sales, invoice activity and credit limits over several years, legal
judgements and collections activities, and a business credit score.

 Ask for References

In the process of assessing creditworthiness, companies will often request trade references before
extending credit to a customer. Trade references can include the customer’s bank, as well as
businesses or suppliers that already extend trade credit to that customer.

12. Explain some advantages of credit.

 Convenience- using credit cards when you travel or shop is more convenient than
carrying cash. It also provides a handy record of transactions. Using a credit card also
may give you some bargaining power if there is a dispute or disagreement involving a
purchase.
 Use other people’s money- during the time between when you buy something with credit
and when you pay the bill, you’re actually using someone else’s money rather than your
own cash.
 Meet emergencies- unexpected cost such as car repairs or health needs can be met
quickly with credit.
 Use something while you pay for it- you can enjoy using something you need as you pay
for it.
 Get something you can’t afford now- if you can’t afford to pay cash for a car or other
large purchase, using credit allows you to get it now.
 May get better service on something bought on credit- if you haven’t paid for something
entirely and a problem arises, it may be easier to get the service needed.