Credit

Term

The promise of one party to pay value at a later date in exchange for another party paying value at the current date.

Explanation

” ‘Credit’ is the third person ¬†singular conjugation of the present tense of the Latin verb¬†credere, ‘to believe.’ It’s the most exceptional and interesting thing in the financial world. Similar leaps of belief underlie every human transaction in life: Your wife might cheat on you, but you hope otherwise. The online store may not ship you your goods, but you trust otherwise. Credit derivatives are just the explicit encapsulations of such beliefs, in financial and contractual form, for corporate entities. Unlike other financial securities, such as shares of IBM stock or oil futures, a credit derivative is not even some theoretical value of a tangible good. It’s the perceived value of complete intangible, the perception of the probability of meeting some future obligation” (20, Chaos Monkeys)

Source

Chaos Monkeys by Antonio Garica Martinez

 

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