Credit Grant

Credit Grant

Credit, the grant of permission by one body t0 another to obtain possession of something owned by the former (e.g. an asset, cash or service) without payment at the time of receipt; any transfer of goods, services or money in exchange for goods, services or money to be received at a future date; or, in most advanced form, a transfer of money in return for a promise to pay in the future. Original meaning is belief or trust (Latin �credere�, to believe).

Since few business transactions are settled in cash at the time, modem society rests largely on credit, or on confidence and trust.

The essence of a credit transaction is the promise to pay at a future date. Such promises may be formal and written (as in bank-notes, bills of exchange, cheques and other promissory notes) or may take the form of debts and loans (as in credit sales made in the normal course of trade or bank advances', sums placed at a person's disposal in the s of a bank). Industry and commerce make extensive use of such entries, relying heavily on a smoothly working system of credit. In Britain this system is provided by the banking system plus a large network of related and subsidiary institutions that act as financial intermediaries (merchant banks, finance houses, the Stock Exchange, the discount market, insurance companies, building societies and others).

The principal function of credit is to finance production in anticipation of demand, i.e. to marry the ownership of productive resources with producers' demands for them. The credit mechanism also economizes the use of currency, permits a more flexible planning of expenditures over time and acts as gathering ground and channel for society's small savings.

Credit generates current spending power. It is always possible that over-expansion of credit in an economy may lead to inflation. For this reason the monetary authorities in post-war Britain have from time to time considered it necessary to restrict the volume of credit by taking measures to raise its cost (thus reducing demand) and/or reducing its supply. 8)

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