According to finance, credit is the process of giving a loan and formation of debt. In case of credit, wealth is offered or transferred from one party to another. The party, which receives the credit, does not instantly make a full payment to the first party, hence a debt or loan is formed.
Parties involved in Credit
The party, which is the receiver of credit, enters into a contract with the provider of credit to repay the amount in the future.
The provider of credit is known as a creditor or lender and the receiver of credit is known as a borrower or debtor.
Usually, the transfer of financial capital banks on credit to a significant extent and successively, credit banks on the creditworthiness or the trustworthiness of the organization that is responsible for the finances.
Credit in Trade and Commerce
The expression credit is also applied in case of trade and commerce. In this domain, credit represents the acceptance of held up payments for commodities that were bought. In some instances, credit is not offered to an individual who is financially weak. Commercial institutions often provide credit to their clients in the form of a component of the terms and conditions of a buying contract. For managing the provision of credit to the clients, a credit manager is appointed by the commercial institutions.
Denomination of Credit
The denomination of credit is performed by a unit of account. This is because of the reason that credit does not have the features to function in the form of a unit of account on its own. Nevertheless, different types of credit may instantly function in the form of medium of exchange. Different types of credit are often termed as money and are involved in the calculation of money supply.
Credit in the Financial Market
Trading of credit also goes on in the financial market. The most perfect form of this kind of market is the credit default swap market that is basically a swapped market dealing in credit insurance.