Credit and Risk Quiz

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16 Questions

What are the three aspects of promise to pay, as per the definition of credit given in the text?

Origins, development, and uses

Why does the degree of risk in credit increase with the time involved?

Extended periods make borrowers more vulnerable to shifts in industry trends and market conditions

What type of coinage was commonly used in the early period mentioned in the text?

Gold or silver

What aspect significantly affects the degree of risk in credit?

Uncertainty about the borrower’s future financial stability

How do long-term credit arrangements impact borrowers?

They tie up funds, posing challenges if a need for liquidity arises unexpectedly

What can impact long-term credit arrangements?

All of the above

Which property of gold and silver made them suitable for long-term use as coins?

Durability

What was a major problem associated with gold and silver coinage?

Transaction costs

What has replaced gold and/or silver as the backing for the most currencies in circulation today?

Backing for currencies: fiat currency system

Which factor contributed to the increased use of credit by consumers since World War II due to post-WWII prosperity?

Economic growth

What makes gold and silver ideal for use as currency, facilitating trade and serving as a reliable medium of exchange?

Intrinsic value

What was a consequence of the scarcity of both gold and silver in relation to their use as coins?

Limited money supply

What limited economic expansion and innovation in relation to the use of fixed metal reserves?

Inhibiting economic growth

What was a consequence of fluctuations in gold and silver values in relation to their use as coins?

Volatility in Prices

What led to incentives for individuals and nations to hoard precious metals, reducing currency circulation?

Hoardina and Speculation

What has allowed central banks to implement responsive monetary policies, unlike when currencies were tied to gold?

Flexibility: allows central banks to implement responsive monetary policies

Test your knowledge of credit and risk with this quiz. Explore the aspects of promise to pay and the impact of time on the degree of risk in credit.

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