Understanding Collateral and Connection in Financial Transactions
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Questions and Answers

What is collateral in the context of credit management?

  • Security provided by the debtor in addition to capital (correct)
  • The interest charged on the credit obtained
  • The connections a debtor has in the industry
  • The money the debtor owes to the creditor

How does collateral differ from capital in credit management?

  • Capital is always required, but collateral may or may not be required (correct)
  • Collateral is a type of interest, while capital is not
  • Collateral is the money a debtor can pay immediately, while capital is long-term investments
  • Capital is provided by the creditor, while collateral is provided by the debtor

How do good connections impact a debtor's chances of getting credit?

  • Good connections replace the need for collateral
  • Good connections increase the interest rates on credit
  • Good connections do not influence credit evaluations
  • Good connections can help a debtor in obtaining credit (correct)

What is the role of credit management in sustaining production?

<p>Efficient collection of accounts receivables (A)</p> Signup and view all the answers

What is the importance of establishing rules for credit investigation and credit granting?

<p>To facilitate efficient collection of accounts receivables (D)</p> Signup and view all the answers

How does credit contribute to economic development?

<p>By facilitating the movement of goods and services faster and in greater quantities (D)</p> Signup and view all the answers

What role does credit play in the creation of business?

<p>Credit provides vital funds necessary for the start-up of any business (C)</p> Signup and view all the answers

In what way does credit contribute to the redistribution of wealth?

<p>Credit enables individuals without material property to acquire goods and services necessary to earn or save (B)</p> Signup and view all the answers

How does credit motivate higher business standards and practices?

<p>By providing manufacturers with the initiative to improve the quality of their products or service (C)</p> Signup and view all the answers

What purpose does credit serve as a liquidity medium?

<p>Credit increases the total amount of money in circulation, thereby increasing purchasing power (A)</p> Signup and view all the answers

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