Miafe B.

Almendralejo BSA 2 – Financial Markets

2nd Sem; 2021-22 Assignment 4

1. Define credit.
I have a basic understanding of how credit works based on what I read and also on my
personal experiences. So, credit is the agreement between parties in which one party allows the
other party to borrow money or obtain goods or services without reimbursing it immediately, but
promises either to repay that will be made in the future, usually with interest or return those
obtained resources at a later date. It evolved over the past century. In my own understanding, credit
plays a vital part in our economy especially in the lives of every individual. Just like what my
parents do in our business which is the "Motor parts and Vulcanizing Shop" where there are
instances that they borrow money from the bank or what we call "loan" just to buy new stocks and
they pay monthly with interest until it will be fully paid. Credit is a component of our financial
power. It enables us to obtain the things we might need right away, or we need credit to purchase
a product or use a service that we cannot pay for immediately, such as a car loan or a credit card,
as long as we promise to pay it back later. Not everyone or every institution has the same ability
to obtain credit. It generally depends on the debtor's ability to persuade the creditor to trust him.
Working to improve our credit helps ensure that we will be able to obtain loans when we need
them. Many credit cards charge fees, but not all cards charge the same fees. Take care to fully
comprehend the fees for which you are responsible. Furthermore, from what I understand, having
good credit makes it easier to do many things, such as rent or buy a home, sign up for a cell phone
plan, or obtain a student loan. We can even save money by having good credit because of lower
interest rates.
2. Discuss its significance in our economy.
As I stated in my response to the first question, establishing and maintaining good credit is
always important and a useful tool in the financial world. Credit clearly plays an important role in
keeping an economy running. Some businessmen may experience financial difficulties or lack
sufficient capital to purchase the raw materials or tools required to manufacture the items we
purchase. As a result, credit makes it possible for them to introduce new talent into the business
enterprise. For example, similar to what happened to my father, he has the qualities of a good
entrepreneur/businessman but is struggling with capital, so credit allows him to put his qualities to
use. In short, credit provides them with the necessary assistance for growth. As a result, there is an
increase in production, employment, profits, and economic state. It assists people from all walks
of life in starting their own businesses, increasing their income, and providing for their families.
An increase in consumption and investment generates jobs and raises income and profit.
Furthermore, credit expansion has an impact on asset prices, increasing their net to value. Because
the owner's wealth has increased as a result of the increase in asset prices, he or she can borrow
more. A small business cannot grow into a larger one without credit. Farmers cannot engage in
large-scale farming in the absence of credit.
 These are in high demand, which aids in economic development. Economic transactions
can take place more efficiently and the economy can grow when consumers and businesses can
borrow money. Credit enables people to meet ongoing production expenses, complete production
on time, and thus increase their earnings. As a result, it plays an important and positive role in a
country's development while also providing an opportunity to save money. Some people save
money but are unable to conduct business. As a result, they lend it to financial institutions. Credit
allows money to be transferred to those who can use it productively. The ability of consumers to
borrow money easily allows a well-managed economy to operate more efficiently and stimulates
economic growth.