Debt: Overview Flashcards
What is the principal in a debt arrangement?
The original amount of money borrowed that must be repaid.
What is interest in a debt arrangement?
The cost of borrowing money, usually expressed as a percentage of the principal.
What is simple interest?
Interest calculated only on the original principal amount.
What is compound interest?
Interest calculated on both the principal and accumulated interest.
Who is the lender in a debt arrangement?
The entity that provides the funds to the borrower, expecting repayment.
Who is the borrower in a debt arrangement?
The entity that receives the funds and is obligated to repay them under agreed terms.
What is collateral in a loan?
An asset pledged by the borrower to secure a loan, which the lender can seize in case of default.
What is default in a debt context?
When the borrower fails to meet the repayment terms, either by missing payments or failing to repay altogether.
What is creditworthiness?
A measure of a borrower’s ability to repay a loan, based on income, credit history, and financial standing.
What are repayment terms?
The specific terms that detail how and when a borrower must repay the debt, including the schedule and penalties.
What is consumer debt?
Debt incurred by individuals, often for consumption, such as credit cards, student loans, and mortgages.
What is corporate debt?
Debt taken by companies to finance operations, expansions, or projects.
What is sovereign debt?
Government debt issued to finance public projects or expenditures.
What is external debt?
Debt owed by a country to foreign lenders, usually in a foreign currency.
How did ancient civilizations view debt?
Debt was often tied to social relationships, and failure to repay could lead to slavery or servitude.
What role did banking systems play in medieval debt?
Medieval banking systems allowed structured financial products like loans, enabling trade and lending.
How did sovereign debt emerge in the 17th century?
Governments began issuing bonds to finance wars and infrastructure projects.
What impact did the Industrial Revolution have on corporate debt?
Companies sought financing for machinery, factories, and expansion, leading to increased borrowing.
How did consumer debt grow in the 20th century?
The rise of consumer culture and credit cards made debt more accessible to individuals.
What are international debt markets?
Debt markets that allow countries and corporations to borrow from foreign investors.
What led to the 1980s debt crises in developing nations?
Developing nations were unable to repay loans from international banks, leading to economic crises.
What caused the 2008 Global Financial Crisis?
Excessive consumer and corporate debt, especially in housing markets, triggered a global financial collapse.
How is digital finance reshaping debt?
Digital platforms and fintech companies are offering faster and more accessible loans.
What are sustainability-linked debt products?
Debt products tied to environmental or social impact, rewarding borrowers who meet sustainability goals.
What is the role of cryptocurrencies and decentralized finance (DeFi) in debt?
DeFi and blockchain technology are introducing crypto-backed loans and decentralized lending systems.
What are negative interest rates?
A policy where interest rates are set below zero to encourage borrowing and investment.
How does growing sovereign debt pose future risks?
High levels of sovereign debt due to social spending and recovery efforts may lead to debt crises.
What is debt inequality?
As student and consumer debt rises, inequality increases, leading to discussions about debt forgiveness.
What impact will automation have on future debt structures?
Automation and AI may lead to job displacement, changing debt structures and credit models.
What could personalized credit models offer?
Highly personalized loans and interest rates based on individual financial behaviors and habits.
What are universal debt management systems?
International systems that regulate and standardize debt contracts, reducing financial contagion risk.
What is economic decoupling in the context of debt?
A country detaching its economy from global markets, affecting its debt reliance on international lenders.
What are social credit systems and their relation to debt?
Systems that track social and financial behavior, affecting access to credit based on an individual’s actions.
