Olimba, Alicia Dawn A.

BSBA – FM
1Y-PM-G 06

Quiz 3 MIDTERM

1. What is credit in economics term?

The credit definition in economics is any agreement where one party
borrows money from a second party with the promise to pay the amount
back with interest. The credit ranges from consumer loans and credit
cards to corporate bonds. This term has many meanings in the financial
world, but credit is generally defined as a contract agreement in which a
borrower receives a sum of money or something of value and repays the
lender at a later date, generally with interest.

2. To buy something with credit means?

To buy something on the condition that you will pay for it later. When you
buy something on credit, you get it right away, but you have to pay for it
later. This is a popular tactic used by business owners to entice customers
into their establishments, even if they don't have the cash. It's an old
concept that has only increased in popularity over time, and it's now a
regular way to pay for everything from huge purchases to minor purchases
like groceries. With the introduction of the credit card, even individuals
with adequate means will purchase products on credit and pay off their
charges each month.

3. Discuss what is credit agreement?

In general, a credit transaction is one in which payment for goods or
services is deferred and interest and other fees are paid as long as
payment is not completed in full. It is a contract between a person or party
who wants to borrow money and a lender. All of the terms of the loan are
outlined in the credit agreement. For both retail and institutional loans,
credit agreements are made. A close corporation applying for a credit card
and the members signing as guarantors for the card payments is an
example of such a combination.
4. What is meant by Cs of credit?
The system considers five borrower attributes as well as loan terms in
order to assess the likelihood of default and, as a result, the risk of
financial loss to the lender. The five C's of credit are used to express a
potential borrower's creditworthiness. The first C is character, which is
determined by the applicant's credit history. The applicant's debt-to-
income ratio is the second C. The third C is capital, which refers to an
applicant's financial resources. The fourth C is collateral, which is an asset
that may be used to back up or secure a loan. The fifth C is the loan's
purpose, the amount involved, and the current interest rates.

5. Give the 3 varying types of credit.

Installment credit, revolving credit, and open credit are the 3 different
types of credit. Each of these items is borrowed and repaid in a unique
way. Installment credit is a sort of loan in which you borrow a large sum
and repay it with interest over a certain period of time in regular fixed
payments, or installments. Revolving credit accounts allow you to borrow
and repay funds from a single line of credit on a regular basis up to a set
limit. Monthly payments on open credit fluctuate, and balances are
payable in full at the end of each billing cycle.

6. Enumerate some examples of long-term finances.

Long-term loans are usually for a year or more, but they can be for much
longer. Government debt, mortgages, and bonds or debentures are all
examples of long-term loans. The debt owing by a central government is
known as government debt (also known as public debt or national debt).
Government debt is one of many ways for the government to fund its
operations. A mortgage is a loan that is backed by real estate. It
necessitates a mortgage note confirming the loan's existence and the
encumbrance of the real estate through the issuing of a mortgage to
secure the loan. A debenture is a document that either creates or
acknowledges a debt that has no collateral attached to it. Debenture is a
medium- to long-term loan product used by major corporations to borrow
money in corporate finance.
7.  What are the best short-term investment options and explain each?
Short-term investments are those you make for less than three years.
You’ll sacrifice a potentially higher return for the safety of having the
money.
Here are the best short-term investments in October:
1. Savings accounts
2. Short-term corporate bond funds
3. Money market accounts
4. Cash management accounts
5. Short-term U.S. government bond funds
6. Certificates of deposit
7. Treasury’s
8. Money market mutual funds

A savings account at a bank or credit union is a good alternative to

holding cash in a checking account, which typically pays very little interest
on your deposit. The bank will pay interest in a savings account on a
regular basis. Savers would do well to comparison-shop savings accounts,
because it’s easy to find which banks offer the highest interest rates and
they are easy to set up.

Short-term corporate bond funds are a bond issued by significant firms

to fund their investments are known as corporate bonds. They're usually
regarded as safe and pay interest on a regular basis, such as quarterly or
twice a year. Bond funds are collections of corporate bonds from a variety
of corporations, typically from a variety of industries and sizes. Because of
the diversification, a poor-performing bond won't have a significant impact
on the overall return. Interest will be paid on a regular basis by the bond
fund.

Money market accounts are a type of bank deposit that normally pays a
higher interest rate than savings accounts while also requiring a larger
minimum investment.

A cash management account, similar to an omnibus account, allows you

to engage in a number of short-term investments. Investing, writing checks
off the account, transferring money, and other conventional bank-like
operations are all possible. Robo-advisors and online stock brokers are
the most common providers of cash management accounts. As a result,
the cash management account provides you with a great deal of options.
Short-term U.S. government bond funds is a government bonds are like
corporate bonds except that they’re issued by the U.S. federal government
and its agencies. Government bond funds purchase investments such as
T-bills, T-bonds, T-notes and mortgage-backed securities from federal
agencies such as the Government National Mortgage Association (Ginnie
Mae). These bonds are considered low-risk.

Certificates of deposit, CDs are time deposits, which means that when
you open one, you commit to keep the money in the account for a set
amount of time, which can range from a few weeks to several years,
depending on the maturity you desire. The bank will pay you a greater
interest rate in exchange for the security of holding this money in its vault.
The bank will periodically pay interest on the CD, and at the conclusion of
the term, the bank will return your principal plus interest gained.

Treasury’s come in three varieties – T-bills, T-bonds and T-notes – and

they offer the ultimate in safe yield, backed by the AAA credit rating of the
U.S. federal government. So rather than buying a government bond fund,
you might opt to buy specific securities, depending on your needs.

A money market mutual fund invests in short-term securities, including

Treasury’s, municipal and corporate debt, as well as bank debt securities.
And since it’s a mutual fund, you’ll pay an expense ratio to the fund
company from the assets being managed.