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...
veduhbhatt2003:
yeah
Answered by
1
Answer:-
It is true that in situations with high risks, credit might create problems for the borrower, e.g., a small farmer takes a loan to meet the expenses of cultivation, hoping that his harvest would help him to repay the loan. But if his crop fails due to shortage of rain or for any other reason, he will be unable to repay the loan.
In such situations a small farmer has to sell a part of his land to repay the loan. Such cases have high risks because the payment of loan entirely depends on good a crop which in turn depends on good rain. HYV seeds fertilizers, pesticides and other factors. This type of loan pushes the farmer into a debt-trap in the case of crop failure and the position of the farmer becomes worse off than before.
Hope it helped!!
It is true that in situations with high risks, credit might create problems for the borrower, e.g., a small farmer takes a loan to meet the expenses of cultivation, hoping that his harvest would help him to repay the loan. But if his crop fails due to shortage of rain or for any other reason, he will be unable to repay the loan.
In such situations a small farmer has to sell a part of his land to repay the loan. Such cases have high risks because the payment of loan entirely depends on good a crop which in turn depends on good rain. HYV seeds fertilizers, pesticides and other factors. This type of loan pushes the farmer into a debt-trap in the case of crop failure and the position of the farmer becomes worse off than before.
Hope it helped!!
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