6) in situation with high risks, credit might create further problems for the borrower. Explain
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This is true that in situations of high risks, credit creates more problems for the borrower on account of the following reasons:
1. The borrower has to pay fixed interest on the money borrowed, whereas the return on investment may or may not come due to uncertainty of business and economic environment.
2. If the borrower fails to pay the borrowed money to the lender, then he might face a legal case in the court of law which will create additional problem for him.
3. High risk is associated with high rate of interest. Payments of high rates of interest will create problem for the borrower if returns from his/her business are not adequate. He/She will face the situation of debt.
Hope this answer might help you...
1. The borrower has to pay fixed interest on the money borrowed, whereas the return on investment may or may not come due to uncertainty of business and economic environment.
2. If the borrower fails to pay the borrowed money to the lender, then he might face a legal case in the court of law which will create additional problem for him.
3. High risk is associated with high rate of interest. Payments of high rates of interest will create problem for the borrower if returns from his/her business are not adequate. He/She will face the situation of debt.
Hope this answer might help you...
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