Introduction
Money and credit play a crucial role in the economy by facilitating transactions, investments, and economic growth. Understanding how money works and how credit functions is essential for financial literacy.
What is Money?
Money is a medium of exchange that is widely accepted in transactions. It has evolved from the barter system to modern digital transactions.
Functions of Money
- Medium of exchange
- Store of value
- Unit of account
- Standard of deferred payment
Forms of Money
Money exists in various forms, including currency (notes and coins), bank deposits, and digital payments.
Credit: Meaning and Importance
Credit refers to the agreement in which a borrower receives funds and agrees to repay later with interest. It helps in business expansion and personal needs but also comes with risks.
Types of Credit
- Formal Credit: Provided by banks and financial institutions.
- Informal Credit: Borrowed from moneylenders, friends, and relatives.
Impact of Credit
Credit can lead to economic development when used wisely but can also result in debt traps if mismanaged.
Role of Banks in Credit
Banks play a key role in providing loans to individuals and businesses while ensuring regulated financial transactions.
Conclusion
Money and credit are essential for economic activities. Proper financial management ensures economic stability and growth.
