Describe the vital and positive role of credit with examples?
Answers
Answer:1. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
2. Credit plays an important role in a large no. of transactions that take place in our day-to-day activities. However, whether credit would be useful or not, depends on the risks involved in a situation and available factors of support in case of loss.
3. For example - Salim, a shoe manufacturer, has received an order from a large trader in town for 3,000 pairs of shoes which are to be delivered in a month's time which is two months before the festival season.
4. Salim needs to hire a few more workers for stitching and pasting work and purchase the raw materials. However, to meet these expenses, he asks the leather supplier to supply leather for now and promise to pay him later and also obtains a loan in cash from the trader as advance payment with a promise of delivering the entire order by the end of the month.
5. The delivery of the order eventually helps Salim in making a good profit and repays the money borrowed. He is not only able to deliver the order within the required time period but is also able to increase his earnings and thereby make profits.
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