Credit, interest rate and bank lending

Question 1

What is credit?

Answer 1

It is a contractual agreement in which a borrower receives something of value from a lender in exchange for future repayment

Question 2

What are the roles of credit?

Answer 2

• they can be used for investment projects
• people can use credit for the satisfaction of basic needs
• the government can use amount borrowed to finance investments in the public domain

Question 3

What is factoring?

Answer 3

It is a financial transaction whereby a company sells its accounts receivables at a discount.

Question 4

What is the difference between a loan and factoring?

Answer 4

• factoring is not exactly a loan (it is the purchase of an asset)
• a bank loan involves 2 parties, while factoring involves 3 (the seller, the debtor and the factor)

Question 5

What is a lease?

Answer 5

It is an greement where the owner transfers the user money in return for a rent to the right to use an asset for an agreed period

(ownership may not be transfered)

Question 6

What is the interest rate?

Answer 6

It is the price that the borrower must pay for the loanable funds received from a lender for an agreed period.