Debt: Overview

Question 1

What is the principal in a debt arrangement?

Answer 1

The original amount of money borrowed that must be repaid.

Question 2

What is interest in a debt arrangement?

Answer 2

The cost of borrowing money, usually expressed as a percentage of the principal.

Question 3

What is simple interest?

Answer 3

Interest calculated only on the original principal amount.

Question 4

What is compound interest?

Answer 4

Interest calculated on both the principal and accumulated interest.

Question 5

Who is the lender in a debt arrangement?

Answer 5

The entity that provides the funds to the borrower, expecting repayment.

Question 6

Who is the borrower in a debt arrangement?

Answer 6

The entity that receives the funds and is obligated to repay them under agreed terms.

Question 7

What is collateral in a loan?

Answer 7

An asset pledged by the borrower to secure a loan, which the lender can seize in case of default.

Question 8

What is default in a debt context?

Answer 8

When the borrower fails to meet the repayment terms, either by missing payments or failing to repay altogether.

Question 9

What is creditworthiness?

Answer 9

A measure of a borrower’s ability to repay a loan, based on income, credit history, and financial standing.

Question 10

What are repayment terms?

Answer 10

The specific terms that detail how and when a borrower must repay the debt, including the schedule and penalties.

Question 11

What is consumer debt?

Answer 11

Debt incurred by individuals, often for consumption, such as credit cards, student loans, and mortgages.

Question 12

What is corporate debt?

Answer 12

Debt taken by companies to finance operations, expansions, or projects.

Question 13

What is sovereign debt?

Answer 13

Government debt issued to finance public projects or expenditures.

Question 14

What is external debt?

Answer 14

Debt owed by a country to foreign lenders, usually in a foreign currency.

Question 15

How did ancient civilizations view debt?

Answer 15

Debt was often tied to social relationships, and failure to repay could lead to slavery or servitude.

Question 16

What role did banking systems play in medieval debt?

Answer 16

Medieval banking systems allowed structured financial products like loans, enabling trade and lending.

Question 17

How did sovereign debt emerge in the 17th century?

Answer 17

Governments began issuing bonds to finance wars and infrastructure projects.

Question 18

What impact did the Industrial Revolution have on corporate debt?

Answer 18

Companies sought financing for machinery, factories, and expansion, leading to increased borrowing.

Question 19

How did consumer debt grow in the 20th century?

Answer 19

The rise of consumer culture and credit cards made debt more accessible to individuals.

Question 20

What are international debt markets?

Answer 20

Debt markets that allow countries and corporations to borrow from foreign investors.

Question 21

What led to the 1980s debt crises in developing nations?

Answer 21

Developing nations were unable to repay loans from international banks, leading to economic crises.

Question 22

What caused the 2008 Global Financial Crisis?

Answer 22

Excessive consumer and corporate debt, especially in housing markets, triggered a global financial collapse.

Question 23

How is digital finance reshaping debt?

Answer 23

Digital platforms and fintech companies are offering faster and more accessible loans.

Question 24

What are sustainability-linked debt products?

Answer 24

Debt products tied to environmental or social impact, rewarding borrowers who meet sustainability goals.

Question 25

What is the role of cryptocurrencies and decentralized finance (DeFi) in debt?

Answer 25

DeFi and blockchain technology are introducing crypto-backed loans and decentralized lending systems.

Question 26

What are negative interest rates?

Answer 26

A policy where interest rates are set below zero to encourage borrowing and investment.

Question 27

How does growing sovereign debt pose future risks?

Answer 27

High levels of sovereign debt due to social spending and recovery efforts may lead to debt crises.

Question 28

What is debt inequality?

Answer 28

As student and consumer debt rises, inequality increases, leading to discussions about debt forgiveness.

Question 29

What impact will automation have on future debt structures?

Answer 29

Automation and AI may lead to job displacement, changing debt structures and credit models.

Question 30

What could personalized credit models offer?

Answer 30

Highly personalized loans and interest rates based on individual financial behaviors and habits.

Question 31

What are universal debt management systems?

Answer 31

International systems that regulate and standardize debt contracts, reducing financial contagion risk.

Question 32

What is economic decoupling in the context of debt?

Answer 32

A country detaching its economy from global markets, affecting its debt reliance on international lenders.

Question 33

What are social credit systems and their relation to debt?

Answer 33

Systems that track social and financial behavior, affecting access to credit based on an individual’s actions.