Payment instruments

Payment system  The payment system = series of arrangements regarding the discounting of the obligations assumed by the economic agents every time they acquire real or financial resources.  The economic agents give instructions to intermediaries, usually banks, to transfer funds from one account holder –payer- to another holder –beneficiary, existing usually a time difference between the issuance of the instruction and the completion of the transfer.  If the payer and beneficiary have the account in the same or different banks- Interbank and intra-bank transfers

Types of payment instruments Payment instruments for operation in ROL are also Payment instruments for operation in ROL are also classified in:  Debit payment instruments (cheque, promissory note, draft ), which represent instruments that circulate from the beneficiary’s bank to the payer’s bank, having as effect the debiting of the payer’s account and crediting the beneficiary’s account.  Payments instruments of credit ( the simple payment order, the treasury payment order ),which represent instruments that circulate from the payer’s bank to the beneficiary’s bank and having as effect the debiting of the payer’s account and the crediting of the beneficiary’s account.

1. The cheque  is a payment instrument  connects during the process of its creation 3 persons: the drawer, the drawee and the beneficiary.  is created by the drawer, whom, based on an available amount deposited previously at a bank, gives an unconditioned order to the latter, which is in the position of the drawee, to pay at the presentation moment a fixed amount to a third person, being in the position of beneficiary.

Elements of the cheque:  the name ‘cheque’ written in the text of the title;  the unconditioned order to pay a certain amount of money;  the name of the one that has to pay (drawee);  the place where the payment has to be made;  the date and place of issuance;  the signature of the issuer (drawer)

2. The draft -negotiable credit titles and paying instruments which prove the obligation took on by the debtor to pay at sight or at a fixed maturity, to the beneficiary or at its order, a certain amount of money. -credit title, under private signature, which connects in the process of its creation 3 persons : the drawer, the drawee and the beneficiary. -credit title, under private signature, which connects in the process of its creation 3 persons : the drawer, the drawee and the beneficiary. - is created by the drawer as a creditor which gives an order to its debtor, called drawee, to pay a fixed sum of money at a certain date in time, either the beneficiary or at his order. - is created by the drawer as a creditor which gives an order to its debtor, called drawee, to pay a fixed sum of money at a certain date in time, either the beneficiary or at his order.

The elements of a draft  The name “draft “ written in the title  The unconditioned order to pay a fixed sum of money  The name of the one which has to make the payment  The maturity  The place where payment has to be done  The name of the person to whom or at who’s order the payment has to be done  The date and the place of issuance  Signature of the issuer of the draft

3. Promissory note  is a credit title, under private signature, which connects in the process of its creation 2 persons: the issuer and the beneficiary.  The title is created by the issuer as a debtor which obliges himself to pay a fixed sum of money, at a certain time from or at presentation to another person, called beneficiary which is the creditor.

Compulsory mentions for the promissory note  The ‘on demand’ clause or the ‘promissory note’ formula must be inserted in the note’s text  The pure undertaking to pay a certain sum  Due date  Place of payment  Date and place where the note was created  Signature of the issuer.

4. Payment order - is a credit instrument which circulates from the bank of the payer to the bank of the beneficiary. Its effects :- debiting of the account of the paying client; crediting of the account of the beneficiary client. Its effects :- debiting of the account of the paying client; crediting of the account of the beneficiary client.  an unconditioned order given by the issuer to a bank to put at the disposal of a beneficiary a sum of money, the respective order is considered a payment order, only if the bank has the funds represented by the specified amount,

The compulsory mentions on a payment order  the unconditioned order to pay a certain amount;  name of the beneficiary and, if necessary, the number of its account opened at the addressee bank;  name of the payer, the number of its account opened at the initiating bank;  name of the initiating bank;  name of the receiving bank;  elements that allow the authentification of the issuer by the initiating bank;  issuing date of the payment order.

The transmission of the payment instruments  Endorsement  Ordinary cession: if “not an order”  Simple remission: “at bearer”  Endorsement = act through which the owner of the payment instrument, called endorser, transfers to another person, called endorsee, all the rights arising from the payment instruments through a written and subscribed statement on the instrument in the moment of its handing over.  -in blank  –in full: the sinature of the endorser, the one of the endorsee, the date of endorsement 

Avalizarea A personal guarantee through which a person, called avalist, guarantees the obligation assumed by one of the persons obliged through the payment instrument, called avalizat, for the amount mentioned on the cheque or for a part of it. A personal guarantee through which a person, called avalist, guarantees the obligation assumed by one of the persons obliged through the payment instrument, called avalizat, for the amount mentioned on the cheque or for a part of it.  Important:  - Aval = guarantee in case of non- payment  - Endorsement = transmission of the payment right.

Payment period Maturiy = the date when the payment instrument has to be paid The draft and the promissory note are paid: The draft and the promissory note are paid:  At sight  At a certain time from sight  At a certain time from the issuance date  At a fixed date The cheque is payable only at sight (at presentation). The cheque is payable only at sight (at presentation). The terms for presenting the cheque are: The terms for presenting the cheque are:  In 8 days if it is payable in the city where it was issued  In 15 days in the other cases ! In the case of the draft and the promissory note, the drawer can stipulate that the amount shall produce interest only for the draft or the promissory note payable at sight or in a certain time from sight.

Discounting The discounting of the title at the bank represents the process through which the owner of the draft or of the promissory note can obtain through endorsement money, previous to the maturity. The discounting of the title at the bank represents the process through which the owner of the draft or of the promissory note can obtain through endorsement money, previous to the maturity.  For the commercial papers that are accepted at discounting moment, the amount written on titles less the discount tax are received by the beneficiary

The cheque circuit

The payment order circuit

questions Real interest rate: a. a. is the nominal interest rate; b. b. is the current rate on the market; c. c. is the difference between the discount rate and the level of devaluation of the capital due to the inflation; d. d. depends directly on the nominal interest value and indirectly on the monetary depreciation. The basic components of the credit analysis are (the five C’s): a. a. capital, credit risk, capacity, collateral, character; b. b. capacity, credit installments, conditions, characteristics of the credit, cash; c. c. collateral, credit history, conditions, capacity; d. d. character, capacity, capital, collateral, conditions.

questions In case of direct leasing: a. a. the lessor is also the supplier; b. b. the lessee is also the supplier; c. c. the financing is made by a specialized company, not by the supplier; d. d. the lessor is also the beneficiary. In case of financial leasing: a. a. the risk and benefits shall be transferred to the lessor at the moment of concluding the contract; b. b. the risk and benefits shall be transferred to the leasing company at the moment of concluding the contract; c. c. the risk and benefits shall be transferred to the lessee at the moment of concluding the contract; d. d. the risk and benefits shall be transferred to the supplier at the moment of concluding the contract.

questions Commercial credit refers to a. the credit allowed directly by the supplier of the goods to the buyer; b. the banking credit; c. the credit allowed by a banking institution; d. the mortgage credit. According to the nature of the guarantees, credits can be classified as: a. credit for production, credits for circulation and credits for consumption; b. private credit and public credit; c. real credits and personal credits; d. redeemable credits and non-redeemable credits.

questions The risk that occurs when the bank will not be able to meet its cash or payment obligations as they fall due is called: a. interest rate risk; b. liquidity risk; c. operational risk; d. technological risk. The type of factoring when the financing is not required is called: a. non-recourse factoring; b. recourse factoring; c. invoice discounting; d. maturity factoring.

questions Endorsement in case of Bill of Exchange refers to: a. the guarantee of the payment; b. signing it on its verso in order to transmit it to another person, the beneficiary called also the endorser; c. transferring all the rights arising out of a Bill of Exchange; d. change of the date and place of the payment The promisor, as a party to the Promissory Note is: a. the person who is entitled to receive payment for the loan secured by the note; b. the person who is promising to repay the loan secured by the note; c. the beneficiary of the note; d. the creditor of the merchandise.

questions The type of factoring when the financing is not required is called: a. non-recourse factoring; b. recourse factoring; c. invoice discounting; d. maturity factoring. The parties to the Bill of Exchange are: a. drawer, drawee and beneficiary; b. promisor and promisee; c. drawer, bank and beneficiary; d. lessor and lessee.

questions Factoring commission called agio consists in: a. interest rate on the market plus fees and commissions; b. financing commission plus service commission; c. only interest rate for the credit granted by the factoring company; d. real interest rate adjusted with inflation. Discounting operations for commercial titles consists in: a. deducting in advance the total interest for an amount that becomes due at a subsequent date; b. transmitting the commercial title to a third person; c. extending the maturity of commercial title; c. establishing an average maturity.

References:   Dima, M.A., (2006), Banking Elements. Lecturing notes and applications, part II, Ed ASE.   Dima, M.A., (2003), Banking Elements, part I, ASE, &idb=24www.ase.ro   Casu, B., Giraradone, C., Molyneux (2006). Introduction to Banking, Prentice Hall   Mishkin, F. (2007). The Economics of Money, Banking and Financial Markets, Prentice Hall (ch 8 plus parts)

ASE Shop and Library   Dima, M.A., (2006), Banking Elements. Lecturing notes and applications, part II, Ed ASE