Credit

Transaction between two parties in which one (the creditor or lender) supplies money, goods, services, or
securities in return for a promised future payment by the other (the debtor or borrower).

Such transactions normally include the payment of interest to the lender. Credit may be extended by
public or private institutions to finance business activities, agricultural operations, consumer expenditures,
or government projects. Large sums of credit are usually extended through specialized financial institutions
such as commercial banks or through government lending programs.

Money

Commodity accepted by general consent as a medium of economic exchange.

It is the medium in which prices and values are expressed, and it circulates from person to person and
country to country, thus facilitating trade. Throughout history various commodities have been used as
money, including seashells, beads, and cattle, but since the 17th century the most common forms have
been metal coins, paper notes, and bookkeeping entries. In standard economic theory, money is held to
have four functions: to serve as a medium of exchange universally accepted in return for goods and
services; to act as a measure of value, making possible the operation of the price system and the
calculation of cost, profit, and loss; to serve as a standard of deferred payments, the unit in which loans are
made and future transactions are fixed; and to provide a means of storing wealth not immediately
required for use. Metals, especially gold and silver, have been used for money for at least 4,000 years;
standardized coins have been minted for perhaps 2,600 years. In the late 18th and early 19th century,
banks began to issue notes redeemable in gold or silver, which became the principal money of industrial
economies. Temporarily during World War I and permanently from the 1930s, most nations abandoned
the gold standard. To most individuals today, money consists of coins, notes, and bank deposits. In terms
of the economy, however, the total money supply is several times as large as the sum total of individual
money holdings so defined, since most of the deposits placed in banks are loaned out, thus multiplying the
money supply several times over.
Money Supply
Liquid assets held by individuals and banks.
The money supply includes coins, currency, and demand deposits (checking accounts). Some economists
consider time and savings deposits to be part of the money supply because such deposits can be managed
by governmental action and are nearly as liquid as currency and demand deposits. Other economists
believe that deposits in mutual savings banks, savings and loan associations, and credit unions should be
counted as part of the money supply. Central banks regulate the money supply to stabilize their national
economies.
Interest
Price paid for the use of credit or money.
It is usually figured as a percentage of the money borrowed and is computed annually. Interest is charged
by the lender as payment for the loss of his or her money for a period of time. The interest rate reflects the
risk of lending and is higher for loans that are considered higher-risk, a relationship known as the
risk/return trade-off. Like the prices of goods and services, interest rates are responsive to supply and
demand. Theories explaining the need for interest include the time-preference theory, according to which
interest is the inducement to engage in time-consuming but more productive activities, and the liquidity-
preference theory of John Maynard Keynes, according to which interest is the inducement to sacrifice a
desired degree of liquidity for a non-liquid contractual obligation. Interest rates may also be used as a tool
for implementing monetary policy .High interest rates may dampen the economy by making it difficult for
consumers, businesses, and home buyers to secure loans, while lower rates tend to stimulate the economy
and encourage both investment and consumption.
Debt
Something owed.
Anyone having borrowed money or goods from another owes a debt and is under obligation to return the
goods or repay the money, usually with interest. For governments, the need to borrow in order to finance
a deficit budget has led to the development of various forms of national debt.
Bankruptcy
Status of a debtor who has been declared by judicial process to be unable to pay his or her debts.
It also refers to the legal process involved: the administration of an insolvent debtor's property by the
court for the benefit of the debtor's creditors. Filing by a debtor is called voluntary bankruptcy; involuntary
bankruptcy is declared by the court upon petition by a creditor
Mortgage
In Anglo-American law, the method by which a debtor (mortgagor) conveys an interest in property to a
creditor (mortgagee) as security for the payment of a money debt.
The modern mortgage has its roots in medieval Europe. Originally, the mortgagor gave the mortgagee
ownership of the land on the condition that the mortgagee would return it once the mortgagor's debt was
paid off. Over time, it became the practice to let the mortgagor remain in possession of the land; it then
became the mortgagor's right to remain in possession of the land so long as there was no default on the
debt.
Consumer Credit
Short- and intermediate-term loans used to finance the purchase of commodities or services for personal
consumption.
The loans may be supplied by lenders in the form of cash loans or by sellers in the form of sales credit.
Installment loans, such as automobile loans and credit-card purchases, are paid back in two or more
payments; non installment loans, such as the service credit extended by utility companies, are paid back in
a lump sum. Consumer loans usually carry a higher rate of interest than business loans.