Podcast
Questions and Answers
What is an essential requirement for giving credit to an individual?
What is an essential requirement for giving credit to an individual?
- To have a written contract
- To trust the individual (correct)
- To ensure they have collateral
- To know their income level
Credit can be defined as a 'sale on trust'.
Credit can be defined as a 'sale on trust'.
True (A)
What form of credit is obtained when purchasing goods from retail outlets?
What form of credit is obtained when purchasing goods from retail outlets?
Merchandise credit
A promise to pay between a debtor and creditor should be in _______.
A promise to pay between a debtor and creditor should be in _______.
Match the following concepts with their definitions:
Match the following concepts with their definitions:
Which of the following is NOT a disadvantage of credit?
Which of the following is NOT a disadvantage of credit?
Credit refers to the ability to obtain goods or services without any promise to pay back.
Credit refers to the ability to obtain goods or services without any promise to pay back.
What is the Latin word meaning ‘to believe’ or ‘to trust’ that credit is derived from?
What is the Latin word meaning ‘to believe’ or ‘to trust’ that credit is derived from?
The contract must identify the principal value of loan and the corresponding __________ for the credit period.
The contract must identify the principal value of loan and the corresponding __________ for the credit period.
Match the following advantages of credit with their descriptions:
Match the following advantages of credit with their descriptions:
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Study Notes
Credit Economy Overview
- Credit is defined as a "sale on trust," requiring belief in the borrower’s ability to repay.
- Represents a present right to receive a future payment as per MacLeod.
- Goods or services can be received without immediate payment.
Learning Outcomes
- Understand the historical evolution of credit.
- Discuss the emergence of credit in business practices.
- Identify challenges businesses face related to credit.
History of Credit
- Barter system utilized goods exchange without money.
- Economic self-sufficiency was a driving factor for the emergence of credit.
- Transition to the use of money as a common medium of exchange began with ancient coins.
Nature of Credit
- Credit provides the ability to obtain valuable goods or cash.
- Essential forms of credit include cash credit from banks and non-cash (merchandise) credit from retailers.
- A valid promise to pay must be documented, detailing principal amount, interest, and maturity date.
Definition of Credit
- Derived from the Latin "Credere/Credo," meaning "to believe" or "to trust."
- Credit is viewed as a debt that arose out of necessity, allowing acquisition of goods/services based on a promise to pay in the future.
Credit Agreement
- A contractual relationship where a lender provides funds or goods to a borrower, who agrees to repay with interest.
- Terms can include repayment on demand or at a specified future date.
Advantages of Credit
- Facilitates wealth expansion by making necessary funds available.
- Saves time and streamlines transactions, making them safer and more convenient.
- Increases purchasing power for individuals and businesses.
- Allows immediate consumption of goods, promoting economic activity.
- Expands economic opportunities, fostering potential growth across various sectors.
- Contributes to the development of new industries and improves customer convenience in purchasing.
Disadvantages of Credit
- Can encourage speculative behavior leading to financial instability.
- May contribute to excessive spending and extravagance.
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