Question

Credit is the fuel that lubricates the Economic Engine of Growth in the World. It is an important economic phenomena. However, reckless Credit is like an uncontrollable wildfire when ignited will consume any gains on its path. Discuss this in the light of Individuals, companies, banking & financial sectors of a country as well as the world as a whole.

Answer 1

Credit helps in fuelling the growth of the economy in various countries and it is also helping in growth of the the capital markets to large extent.

Credit will be helpful in providing various section of society with required amount of fund and they are also so making the credit available to the down trodden sections of the society through microfinance so credit is leading to a system of of discounting of the future income of various individual and they are trying to provide them is an opportunity of maximizing the rate of return by having accessibility of the credit.

Credit has even helped various corporate to raise funds from outside the domestic territory and they can also help through difference in the exchange rate phenomena and other aspect of the economy.

However, reckless credit can have negative impact on the overall global economy as collapse of even one big organisation can trigger the downfall of overall economy through ripple effect because when the bad assets are are starting to reveal themselves then there will be a change in the status of books of accounts of many companies and these Financial institutions are always exposed to the bad credit as at the time of downfall,there is a very high intensity and risk of getting bankrupt because all the growth has been done on the basis of the credit,so credit is a benefit but it can be lethal if it is not managed properly because there can be financial condtagion in order to collapse the entire global economy if credit is not managed properly.