Question

how credit plays a positive role and negative role.

Answer 1

Credit refers to a loan, an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. It refers to an activity of borrowing and lending money between two parties.​

Credit can play a both positive and negative role.

a. For example, a manufacturer taking credit during festive season in anticipation of increased demand for his product during the festival, to expand his production, to meet his production costs  and later that situation has worked in his favour, as it enabled him to increase his output and sales too. In such a situation ,credit plays a positive role. As in case of Salim the shoe manufacturer, the example mentioned in the textbook.

b. However, in another situation for instance, a small farmer who has taken credit for cultivation might face a problem. As crop production involves high costs on inputs life HYV of seeds, fertilizers, pesticides etc. Farmers generally take loans at the beginning of the season and repay after harvest. But the failure of the crop makes loan repayment impossible, which at times compel them to sell part of their land which worsens their situation. Here, credit has a negative impact.

Answer 2

Positive and negative role of credit

Explanation:

Credit are the borrowing that are to be repaid in future. it has both positive and negative impact on any firm , business etc.

Positive role:

• It ensures availability of money ( both short term and long term) as and when needed
• the business need not to be stopped due to shortage of fund as we can borrow them and repay from the profit earned.
• company need not to have huge funds in reserve as they can get it from market in the form of credit.

Negative role:

• it creates repayment obligation of principle as well as interest which creates heavy burden on the company.
• if the company is not able to repay fund on time they can be declared bankrupt and their assets can be auctioned.

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Role of credit

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