Category: Credit

Introduction

The purpose of the research study was to determine whether students who do the extra credit project learn more and do better in the course (as observed by their total score in class) in spite of their individual score on the extra credit project. The study was controlled for the variable students GPA, since students who tend to have higher GPAs are likely to do well in classes overall.

Research Question

The research attempts to answer the following question: do those who do the extra credit project learn more and do better in the course (have significantly higher total score) than those who do not do the extra credit project, the students specific score on the extra credit project notwithstanding?

Hypotheses

• H₀ (Null hypothesis): ¼_y = ¼_n, the mean students total score for those who do the extra credit project (¼_y) is the same as the mean students total score for those who do not do the extra credit project (¼_n).
• H₁ (Alternative hypothesis): ¼_y ` ¼_n, the mean students total score for those who do the extra credit project (¼_y) is the same as the mean students total score for those who do not do the extra credit project (¼_n).

Variables

The following are the variables used in the study: students total score in the class, students GPA, and did extra credit project. The variable students total score in the class (total score) is a continuous, quantitative variable of the ratio scale of measurement. It is a dependent variable in this study. The variable students GPA (GPA) is also a continuous, quantitative variable of the ratio scale of measurement (Adèr, Mellenbergh & Hand, 2008). It is the control variable in this study. The variable did extra credit project (extra credit) is a discrete, categorical variable of the nominal scale of measurement (Creswell, 2012, p.17). It is the independent variable in this study.

Descriptive Statistics

The mean and standard deviation for the overall total score in the class were 79.03 and 11.042, respectively. The students that did the extra credit project had a mean total score of 83.85 with a standard deviation of 9.167, while those who did not do the extra credit project had a mean total score of 74.20 with a standard deviation of 10.827. The median total score for those who did extra credit project was 81, while for those who did not was 73.5.

A mean value larger than the median suggests a positively skewed distribution (American Psychological Association, 2010; Huck, 2012). Therefore, the distributions of the total scores of the students that did extra credit project and those who did not, as well as the distribution of the overall total scores are positively skewed. The mean for the overall GPA was 2.6158, and the standard deviation was 0.65613. The students that did the extra credit project had a mean GPA of 2.7150 with a standard deviation of 0.62818. Their median GPA was 2.635. Those who did not do the extra credit project had a mean GPA of 2.5165 with a standard deviation of 0.68434.

Their median GPA was 2.455. The means and medians also suggest that the distributions for the GPA of both the students that did extra credit project and those who did not as well as the distribution of the overall GPA are also positively skewed. Forty individuals participated in the research study, of which half of them did the extra credit project while the other half did not do the extra credit project. The mean and median are not meaningful for a nominal variable, such as did extra credit project as well as ordinal variables.

ANOVA and ANCOVA

A one-way ANOVA was conducted for this study because only one factor was involved. There is an interaction between the independent variable and the covariate (P<0.05). This result is significant because it highlights that the differences observed between the condition mean may be due to the manipulation of the independent variable as opposed to chance. It is not important to report the significant results for GPA because the variable is a control variable. The variable of interest was the students total score.

The results of the ANCOVA (P < 0.05) lead us to reject the null hypothesis (the mean students total score for those who do the extra credit project is the same as the mean students total score for those who do not do the extra credit project) in favor of the alternative hypothesis (the mean students total score for those who do the extra credit project is significantly different to the mean students total score for those who do not do the extra credit project).

In other words, there is a significant difference between the means for the total scores of students that did the extra credit project and those that did not need when adjusted for the covariate  Students GPA (P < 0.0005). It can be concluded that students that do extra credit projects learn more and do better in the course than those who do not do the extra credit project. However, it cannot be concluded that doing the extra credit project is the cause of the students better performance.

Issues related to Data Collection

A number of issues concerning how the data was gathered should be considered in the interpretation of data. In regards to ethics, subjects should not be forced or tricked to provide responses. The need to inform the subjects of the purpose of the research may lead to bias of results. An appropriate research design should be used with various data collection methods. For instance, a research design that is suitable for data collected through random sampling may not be suitable for data collected through non-random samples. Correlation should not be interpreted to mean causation. Causation can be viewed as probabilistically or deterministically.

Conclusion

The results of the ANOVA showed that an interaction existed between the covariate and the independent variable. This means that the difference in the condition means could be due to independence variable manipulation as opposed to chance. The results of the ANCOVA led to the rejection of the null hypothesis and the conclusion that there is a significant difference between the means for the total scores of students that did the extra credit project and those that did not do the extra credit project when adjusted for the covariate  Students GPA. Therefore, students who do extra credit projects learn more and do better in the course than those who do not.

References

Adèr, H. J., Mellenbergh, G. J., & Hand, D. J. (2008). Advising on research methods: A consultants companion. Huizen: Johannes van Kessel Publishing.

American Psychological Association (2010). Publication manual of the American Psychological Association (6^th ed.). Washington, D.C.: American Psychological Association.

Creswell, J.W. (2012). Educational research: Planning, conducting, and evaluating quantitative and qualitative research. Upper Saddle River, NJ: Prentice Hall.

Huck, S. W. (2012). Reading statistics and research (6^th ed.). Boston, MA: Pearson.

What is a HELOC

Home Equity Line of Credit is a type of credit that is secured by a home and one is able to use it for anything. The way HELOC work is similar to the way the credit card is being used, it allows one to continually to get into the line of credit, use even up to the credit limit within the draw period (Farrell, 2020). Since allows one to have the access to the credit line, it therefore guarantees spending as much or as little one wishes but interest is paid on the amount used.

Advantages of HELOC

HELOC have a comparatively lower interest rate compared to the credits and personal loan. Though the rate of credit is dependent on the credit score, HELOC typically tends to have a lower rate the other forms of credits. They have a variable rate of products, this will mean that over time, the rate will change, but even when the rates will rise those for HELOC will still be lower compared to other credits and personal loans (Farrell, 2020). It gives one an option of locking the rates. This allows one to fix the interest rate on the outstanding balances and prevented from being affected by the rising rates. Lastly, one is only required to pay what is spent. This kind of flexibility will make HELOC to be the option for project that one cannot determine full cost at the start.

Didisadvantages of HELOC

HELOC offers a minimum withdrawal requirement that borrowers must follow. Unlike credit cards and personal loans, which allows one to withdraw any amount of money. HELOC has some rules with commits one to maintain the line of credit open for a given amount (Kim, 2020). Correspondingly, HELOC have a variable interest rate, unless one chooses a rate-lock option that is given by some lenders. This the means that rate will depend on the prime rate and is subjected to change due to fluctuation of prime rates.

Lender/Bank Offering the Best HELOC Program

Flagstar Bank in the best lender in 2022, its minimum credit score is 620 and their minimum down payment 3%. The bank excelled in offering low fees, affordable loans, convenience and flexibility. This is according to the interest rates that reflect as the annual percentage rates (Medina, 2022). In addition, lenders combined loan to value ratio requirement which was added by totaling all loan property to its current value. The graph below shows how most borrowers have kept their funds from the credit line to do home improvements, such as additions and renovations.

Does HELOC Increase Your Mortgage Payment

HELOC does not increase or affect the existing mortgage, as the cash-out refinancing. Therefore, if anyone who has low rates on the existing loan and not ready to refinance, one can keep the low rate in intact and only service the higher rate on what is borrowed from equity (Kim, 2020). A home equity loan is like a mortgage, this mean debt that is kept for the property, added to the mortgage used to build it. One can tap the equity as needed and payment can be done on that which was borrowed. They can finance projects using HELOC this will increase the mortgage payment.

How is HELOC Paid Back?

Over a period of time HELOC have been working within a 30-year model. This where it allows one 10 years to draw money, then it gives 20 years of paying off whatever was spent; however, other draw and payment period exist. If one has an interest-only HELOC, the required is that the payment should be made to cater for interest not the principal in the draw period (Farrell, 2020). The full principal and interest payment is done during the payment period. However, it is advisable that if one is to make payment towards draw period to do, this will enable one to avoid larger monthly payment.

References

Canner, G. B., Fergus, J. T., & Luckett, C. A. (2019). Home equity lines of credit. Federal Reserve Bulletin, 74(7), 361. Web.

Farrell, D., Greig, F. and Zhao, C. (2020) Tapping home equity: Income and spending trends around cash-out refinances and helocs, SSRN Electronic Journal. Web.

Kim, J. (2020) Macroeconomic effects of the mortgage refinance and the Home Equity Lines of Credit, Journal of Economic Dynamics and Control, 121, p. 104021. Web.

Medina, B. (2022) The 4 best HELOC lenders & home equity line of credit rates, Construction Coverage. Web.

For most intents and purposes, credit cards are superior to carrying cash. They are more compact and secure and can enable payments over the Internet. The situation for vendors is somewhat different, but credit card readers are becoming increasingly widespread. Nevertheless, many people prefer to use cash instead of cards due to a variety of reasons. This essay explores the advantages and disadvantages of each payment method.

One advantage of cash for the consumer is the increased clarity and awareness. A person sees the amount of money he or she has available and cannot exceed it. According to Wakamori and Welte (2017), people prefer using cash for small transactions. Furthermore, one can reasonably expect it to be accepted anywhere within a country. These traits of reliability and the sense of control lend traditional money significant popularity.

Nevertheless, both debit and credit cards are prevalent at the moment. Wakamori and Welte (2017) note that over two-thirds of the people in their survey use them exclusively or alongside cash. The international viability of most types of cards appeals to travelers, though there may be fees associated with such uses. Another advantage is those card transactions are the same regardless of the amount, making them convenient for large purchases. Overall, modern technology has considerable benefits and is essential to current operations.

From the standpoint of a vendor, cash is usually easier to accept. It does not require any particular technology and can be done anywhere. This tendency is reflected in Wakamori and Weltes (2017) research, which shows almost two-thirds of sellers only accepting cash. However, the situation reverses with online merchants, who frequently do not, or cannot, take cash. As such, both payment methods have found their niche among vendors.

Despite the benefits offered by credit cards, cash remains a popular choice for both consumers and vendors. It is more convenient for small and quick transfers, and many sellers do not support credit cards. However, the benefits of using credit cards have ensured their place in many transactions and business models. Most online vendors would be unable to function without digitalized payment methods. As such, both approaches have a place in the current economy and are unlikely to displace each other entirely.

Reference

Wakamori, N., & Welte, A. (2017). Why do shoppers use cash? Evidence from shopping diary data. Journal of Money, Credit and Banking, 49(1), 115-169.

Introduction

Debt is a dangerous form of money that significantly affects overall credit history and adversely affects future financial standing. Individuals are at high risk of losing assets if they fall behind on payments or fail to repay debt. The general accumulation of debt results in the closing of all accounts and official sources of income. Debt is associated with the risk of losing assets, so the individual must follow general economic principles of financial management.

Debt Analysis

Debts can be repaid in various ways, with asset-based repayment being predominant. Assets are the totality of a persons controllable resources that can generate income in the future. The use of assets allows a person to generate revenue. Tangible assets enable a person to generate income of a certain amount and for a relatively long period, thereby covering even large debts. There are high risks of losing significant profits by financing debts through intangible assets (Hawkins, 2018). For example, software ceases to be relevant, and the owner begins to lose customers and profits: the debt grows. Debt repayment costs can reach necessary amounts, which is not always due to a personal mistake. It is essential to manage finances competently to minimize repayment costs (Chen et al., 2021). The individual assumes significant risks because the idea may not be completed due to a market downturn, loss of relevance of the concept, or bargain-basement pricing. Nevertheless, having debt can be a launching pad for wealth. The notion of recycling involves converting inefficient debt into efficient debt. One can use such a strategy to replace a useless object with a profitable one.

Risk and 5Cs

Default risk is a financial measure that reflects the degree to which a lender is at risk of taking on defaulting borrowers. Risk accompanies all lenders because no matter how successful a borrower is, the chance of losing is wholly lost (Hawkins, 2018). In my opinion, I present default risk as a student since I cannot possess a sure fixed income at this time. As a result, lenders may rate me as a middle-income borrower who cant fully repay the loan. In terms of obligations, I may be assessed as an interested person with a good idea but not fully capable of securing it. The times are likely to be a significant barrier in my loan process. I need to provide myself with a financial earning strategy, analyze the market, and plan projects for future planning. In addition, I should pay attention to my capabilities and start accumulating assets at this point.

Overview Video

The video draws attention to the problem of attitudes towards debt and the ability to pay it off. In addition, Tim Clue presents the idea in an understandably humorous manner, making the situation of hugely accumulating debt both comical and frightening. The jokes and the comedians tone reveal a lighthearted attitude toward the problems. Nevertheless, the situation is scary, and such a good attitude can have a detrimental effect on future repayments and the overall image of the borrower.

Conclusion

In summary, financial debt transactions are a problematic concept to organize an individuals assets and income. Debt repayment using assets is effective if the investments have a sure strategy aimed at several areas. Default risk describes a potential borrower using five criteria that score me reasonably poorly. Finally, filing debt in a jocular tone helps ease the moral hazard but does not reduce the deficit. To repay debts effectively, an individual must have a unified strategy that solves the problem of accumulation and promotes conversion.

References

Chen, H., Xu, Y. & Yang, J. (2021). Systematic risk, debt maturity, and the term structure of credit spreads. Journal of financial economics, 139(3), 770-799.

Hawkins, R. (2018). The 5Cs of tactical risk management. The secured lender.

Credit card debt is a phenomenon that is characteristic of the U.S. economy and banking system because the U.S. households prefer using credit cards and regularly report credit card debts. In this context, it is important to examine what factors can influence the increases in borrowings and accumulations of debts. The phenomenon of the credit card debt related to the U.S. households was examined by Meier and Sprenger with references to the focus on individuals preferences regarding immediate consumption that can influence the increases in borrowings and debts (Meier & Sprenger, 2010, p. 195).

Referring to the researchers approach to design and measurement, it is necessary to state that Meier and Sprenger chose to collect and analyze two types of data that are the administrative information regarding the participants credit card debts and the data regarding the participants attitude to immediate consumption. Thus, the researchers worked with the existing data on the participants credit card history, and they also experimented to measure the individuals preferences regarding consumption (Meier & Sprenger, 2010, p. 197). The selected experiment was designed as an incentivized choice experiment, and it was aimed to explore what preferences regarding the time of consuming new goods concerning the borrowing time are characteristic for individuals (Meier & Sprenger, 2010, p. 195).

The researchers focused on such data as the socio-demographics information about the participants of the study, the credit data, and time preferences associated with immediate and non-immediate consumption (Meier & Sprenger, 2010, p. 198). The median numbers presented in the tables with summary statistics and time preferences reflected the data on gender, age, race, income, debt, and time preferences. The researchers measured time preferences with the focus on the individual discount factor that was selected as important to determine the statistically significant relationship between variables (Meier & Sprenger, 2010, p. 200). Much attention was paid to correlating and comparing the numbers regarding the credit card debts and the focus on time preferences associated with the participants desire for immediate and non-immediate consumption.

While focusing on the results of the statistical analysis, Meier and Sprenger concluded that there is a direct relationship between the size of the credit card debt and individuals time preferences as the focus on consuming immediately after receiving the new borrowing (Meier & Sprenger, 2010, p. 207). Thus, the authors concluded that those persons who prefer to buy goods immediately after receiving the borrowing have higher credit card debts and demonstrate the unwillingness to pay for the made borrowings regularly.

It is also important to state that the researchers approached the problem of increasing credit card debt rates in the right way because much attention was paid to the individual factor as the main aspect to influence the problem of credit card debt concerning the U.S. households borrowings. Furthermore, the completed study provides statistically significant and credible results and findings because it is based on the data received from the experiment as well as on the administrative data. As a result, the factor of bias that is associated with observing and analyzing the debt levels that can be self-reported by the participants is decreased.

Reference

Meier, S., & Sprenger, C. (2010). Present-biased preferences and credit card borrowing. American Economic Journal: Applied Economics, 2(1), 193-210.

A credit card enables you to buy something now and pay for it later. As a result, a credit card can help you when youre short of cash. Further, carrying a credit card can be a lot safer than carrying cash. Cash can be lost or stolen. Credit can be traced so that youre protected against theft or loss.

Credit is not free money. Every dollar you change, youll have to pay back. A credit card enables you to buy things when they are on sale or when you need them, even if you dont have the cash at that moment. For example, you need your books at the beginning of the semester, whether your student loan has come through or not. You can buy online with a credit card, too. (OConnell, 2004)

Most important, using a credit card helps establish your credit history, which is essential for the big-ticket items youll purchase after graduation: cars, apartments, Houses. The privilege of using credit cards comes with a price, however- literally. How high the price depends on how you manage your credit.

Pay your balance in full, and on time, each month and cost is zero. Make partial payments or late payments, and the cost can be steep. The penalty for making partial payments rather than paying in full is called interest or finance charges. There are several different types of credit cards: bank cards, store cards, gasoline cards, and secured cards. (Cunningham, 2005)

Credit Cards have gained a lot of popularity in the US and around the world. Most businesses use credit card services. The businesses, especially retail stores, have their own credit cards.

Either they have just a credit card for their store alone, or they might have a Visa, MasterCard, or even an American Express logo on it where the consumers can use that credit card no matter where they shop. This prompts the user to use the card indiscriminately and end up indebted under a huge sum of the amount, including the interests.

Long-term cardholders who carry a balance, pay late, and on occasion would surpass their credit limit, thus incurring additional fees, would, in fact, be the most profitable customers for card issuers. The reason would, in fact, be that further penalty pricing in the form of higher interest rates would typically be imposed sixty days after a cardholder would violate the account agreement.

This usually occurs in going past due on a payment. This higher interest rate may compensate the issuer for higher risk; it actually may tend to increase the risk for the consumer that pays it. The reason for this would be that there is a higher risk at default for the consumer credit cardholder as a resulting rise in costs. (OConnell, 2004)

This is a dangerous trap for the average consumer and particularly students who are comparatively less experience in handling finance. According to the research done, consumer credit is obtainable, but it is not the key issue involved.

The issue would be complex and competitive. This is because of the manner in which credit cards are offered that distract consumers from understanding the terms. The customers agree and accept the responsibility and consequences that travel hand in hand with credit use. Young people and others who would be new to the credit market would be more vulnerable than others would. (OConnell, 2004)

Credit Card debt is often associated with spending too much, and in place of using cash or checks, credit card balances would be utilized. Credit Card debt occurs regardless of who incurs it. However, it would mainly happen to an inexperienced population, particularly in the context of credit finances. An average of students credit card debt in 2001 to be in excess of $2000, and 47% of these students carried four or more credit cards.

Regardless that credit card debt decreased from 2000 to 2001, the median credit card debt increased and the percentage with balances in excess of $3000 but less than $7000 increased from 13% to 21%. Those in excess of the $7000 range would have decreased from 9% in 2000 to 6% in 2001. (Rozakis, 2007)

Forty-two percent of former undergraduate students who participated in the 2002 National Student Loan Survey reported that student loan debt was a major reason for not attending graduate school. (OConnell, 2004)

However, there are many benefits to having a credit card. They are very convenient for use. One really need not carry cash if one is carrying a card. Furthermore, during the time of financial emergency, one can avail of ready cash all the time.

The only thing you have to remember is that there is always an APR rate, and that is an Annual Percentage Rate. As long as you pay that credit card in full the next billing cycle, you will not be charged the annual percentage rate. (Brundage, 2008)

Consumer credit is obtainable, but it is not the key issue involved. The issue would be complex and competitive. This is because of the manner in which credit cards are offered that distract consumers from understanding the terms. The customers agree and accept the responsibility and consequences that travel hand in hand with credit use. Young people and others who would be new to the credit market would be more vulnerable than others would.

Credit Card debt is often associated with spending too much, and in place of using cash or checks, credit card balances would be utilized. Credit Card debt occurs regardless of who incurs it. (OConnell, 2004) However, it would mainly happen to an inexperienced population, particularly in the context of credit finances.

It should be mentioned that general customers and students are target markets for credit issuers and banks, and often their level of financial literacy would not include basic skills necessary to manage credit. Thus, it is essential to practice safe method f credit card payments.

References

Brundage, C. (2008). Credit Card Survival strategies. Melbourne: HBT Publishers Pvt. Ltd.

Cunningham, S. (2005). Introduction to Financial Management. Hobart: DLTT Publications Ltd.

OConnell, B. (2004). Free yourself from Student Loan Debt: Get Out from Under once and for Al. LA: Dearborn Trade Publishing.

Rozakis, L. (2007). The Complete Idiots Guide to College Survival. Auckland: Alpha Books.

Before the havoc wreaked the markets in the United States and across the globe in 2007, the world’s economy was booming and expanding, growth rates of output significantly increased. Surprisingly, this expansion started to stop when the housing prices which has seen an increase over the years began to fall. Some economists were of the view that the fall in the pricing of houses would not result to a credit crunch, although it can decrease the spending of customers. Their view was that the Federal Reserve Board could cut down interest rates to escape a decline in growth of output and a hike in demand. Nonetheless, other argued that a reduction in rate of output may not be enough to cease output to fall and a rise in demand.

Financial institutions and banks already sold these securities that were backed by assets to banks and people who interested in investments. Due to the complexity and complications associated with the assessments of the valuations of these securities banks became reluctant in lending to each other, due to uncertainty of the quality of their assets to prevent default when repaying. IndyMac the largest mortgage lender in the US collapsed and was taken over by the government. Issues got worse as Fannie Mae and Freddie Mac who had ownership about $5.1 trillion of the US mortgage market became financially incapacitated and was taken over by the government in 2008. The problems continued as numerous banks found themselves burdened and this resulted to the insolvency of a leading investment bank called Lehman Brothers. This resulted to the credit crunch popularly known as the ‘Great Recession’.

Events That Led to the Credit Crisis

The two key macroeconomic factors that accounted for the credit crisis in the US were the US growth model in relation to the effects it had on making demand and distribution of income model and the global economic engagement of the US model. The US growth model can be referred to as the neo-liberal growth model that cut off the medium by which wages should grow with productivity and replaced it rather with borrowing and a persistent increase in asset pricing. This saw a sudden growth in the business sector and that motivated households to manage their spending with debt (Palley, 2009).

The global financial crisis which had its origin in the US housing market began in 2007 with a pervasive decrease in the US houses prices and other EU nations (Thakor, 2015). The blend of the global macroeconomic factors and US monetary policy created an environment for financial institutions to enjoy a lengthy period of sustained profitability and growth. This led to an elevation in perceptions of skills in managing risk (Thakor, 2015) and this motivated financial innovation. The financial innovation was directed towards information technology which made all securities tradeable and marketable and this sparked the expansion of subprime mortgage market. This made banking connected with markets (Boot and Thakor, 2014). This made the government thought very well of its citizenry by enacting a legislation that stipulates that 30% and later increased to 55% of mortgages purchased by mortgage guarantee companies should come from the low- and average-income earners (Schoenbaum, 2012); this epitomizes subprime households. Nonetheless, there were no proper systems to track the financial records of these firms and individuals the loans and mortgages were awarded to (Kolb, 2010). Because banks reduced the interest rates to the minimum level, household capitalize on it and purchased more than they could afford (McKinsey,2008). Nonetheless, many defaulted in the subprime mortgage sector; this is because numerous debtors in the housing sector were not able to pay their debt obligations (Gennaioli and Vishny, 2012). By October the aggregated weight of these events had caused the crisis to spread in Europe and other economies (Thakor,2014).

The housing asset bubble is an upward price movement which largely depends on persistently borrowing excessively and persistent fall in the level of savings so that the people will demand more. This will cause spending to continually increase at a constant level. The severity of the 2008 credit crisis in the financial sector and its effects on economies was too pervasive and break up the entire financial system due to excessive use of debt financing, there were no savings and people borrowed to a level that they could no borrow anymore (Kolb, 2008; Palley, 2009).

Effects of the Credit Crunch

The ripple effects the credit crisis had on numerous markets and the United States economy cannot be underestimated. Both the stock and money markets experienced a huge loss as result of the financial crisis. The financial crisis cost the US an estimated 40% to 90% of one year’s output, an estimated to $6 to $14 trillion which is equivalent of $50,000 to $12,0000 for every US household (Attikson, Luttrell and Rosenblum, 2013). Also, investors lost confidence in the capital market and they stopped investing. This caused bond yields to fall and stock prices’ performance fell eventually (Johnson, 2013). Due to easy credit with relaxed underwritings standards, booming house priced, and a low interest rates household debt significantly increased (Mian, Rian and Sufi 2013). Moreover, highly levered households cut down consumption and the prices of houses and stock prices of household reduced (Mian, Rian and Sufi 2013). Unemployment rose, stock market decreased by approximately 50% in the mid-2009 and GDP reduced significantly. The growth of the economy can be linked to its rate of unemployment. Whenever the growth of the economy falls, unemployment increases.

The Effects of the Credit Crisis on the African Stock Market

The 2008 credit crisis created a severe impediment to the progress of the African stock market. Even though the crisis emanated from the US subprime mortgage, it transmitted to other economies which led to a fall in the sentiment of investors (Umar and Sabri, 2019). South Africa and Nigeria have the largest stock markets in the region representing about 89% of the total market capitalization (Boamah et al., 2017). Since the US economy contributes about one fourth of the world’s GDP, a decrease in their economy would impact economies across the globe (World Bank, 2016). Stock markets are globally related, and this accounts for the transmission of the effect of credit crisis to the African stock market. Many economies experienced a massive depletion in wealth (Srivastava, 2015). The credit crisis resulted to a massive fall in exports, imports and the flow of foreign direct investments to economies in Africa, accompanied with a significant decline in market capitalization and national indices (Boamah et al., 2017). There was a shrank in the South Africa’s stock market (Majapa and Gossel,2015) and the value of Nigeria’s market capitalization reduced significantly by about 96% (Boamah et al., 2017).

Regulatory Changes to the Financial Crisis

One would have thought that the US savings and loans and banking crisis in 1980s and early 1990s should have been an avenue for both the UK and US regulators to learn regulatory lessons in restructuring the system to reduce failures (Eisenbeis and Kaufman, 2010). The 2008 credit crunch is most likely to happen again if the blunder and errors made are not perfected and appropriate measures are not being staged to protect financial sector and avert it from reoccurring. The US government created the Financial Stability Oversight Council (FSOC) under the Dodd-Frank Wall Street Reform and Consumer Protection Act to avoid reoccurrence of the credit crisis. The enactment of this legislation is designed to eradicate some of these informational gaps, risks and safeguard rights of consumer (Acharya and Onucu, 2011). Under the auspices of the Dodd-Frank Act, the Consumer Financial Protection Bureau is safeguarding households against being short-changed by these mortgage firms and creditors and stops lending associated with great risks (Thakor, 2014). Also, the US government set up the Federal Depository Insurance Corporation as a measure of regulating and reducing risks and ensure a sanitized banking operation for people who do business in the money market funds.

Conclusion

Warren Buffet, one of the world’s greatest stock investors, once said: “Never let go off money”. Having envisaged the impending crunch, I would cease investing by withdrawing my money from these investment banks. In addition to this, I would have sold my real estate properties earlier before investments banks were still mortgaging despite the general decline in the housing market. Furthermore, the benefits associated with the liquidity in the forex market and its corresponding substantial amount, forex traders would have had favorable circumstances to benefit in the direction of either the bullish or bearish dependent on the market’s technical benefit. The Euro to the Dollar technically broke down from its bullish medium within period commencing by early August, 2008 subsequently extending to twice peak at its high around 1.60450 within the period commencing early July, 2008. A bearish would have made profits in this circumstance. Moreover, because real estate properties’ values dived at a fast pace and supply increased, it would have been an appropriate period to procure the real estate properties with the surplus gains earned from the forex market at absurd prices and later sell them for a quick profit after the brouhaha in 2008. Conclusively, having envisioned the severity of the loss in the stock market, I would have moved my funds into bonds and cash. Nonetheless, I would revert my funds back into shares when the outlook improves.

References

1. Acharya, V. and Onucu, S. (2011). The Repurchase Agreement (Repo) Market. In V. V. Acharya, T. F. Cooley, M. P. Richardson, and I. Walter (Eds.), In regulating Wall Street: The Dodd-Frank Act and the new architecture of global finance. Hoboken, NJ: John Wiley and Sons.
2. Amadeo, K. (2019). Subprime Mortgage Crisis, Its Timeline and Effect. The Balance, 25 June.
3. Amadeo, K.2019. The Balance: Unemployment Rate by Year Since 1929 Compared to Inflation and GDP. Available from https://www.thebalance.com/unemployment-rate-by-year-3305506 [Accessed 20 March 2020].
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5. Atkinson, T., Luttrell, D. and Rosenblum, H. (2013). How Bad Was It? The Costs and Consequences of the 2007–09 Financial Crisis. Staff Paper No. 20. Federal Reserve Bank of Dallas.
6. Boako, G., and Alagidede, P. (2018). African Stock Markets in the Midst of the Global Financial Crisis: Recoupling or Decoupling? Research in International Business and Finance, 46 ,166-180. Available from doi: 10.1016/j.ribaf.2018.02.001.
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In the United States, citizens take their credit scores seriously since they can affect how they live their lives. They show the creditworthiness of people to lenders who then decide if these banks or credit card companies should provide people with loans if needed for purchases. In China, the government takes these scores more vigorously and instead of taking out loans, these scores are decided based on the honesty and integrity of their citizens. If a citizen is behaving correctly in society, they are rewarded with discounts on energy bills, rent items without deposits, and provide a citizen with more matches on a dating website. If a citizen behaves dishonestly, they can be banned from taking a flight, get their dog taken away, and be blacklisted, which is the lowest position possible .

The Social Credit System and Its Main Features

The State Council of China, in 2014, published a document called ‘Planning Outline for the Construction of a Social Credit System’ claiming a radical idea that would forever change China. The plan explained that the citizens of China were to now be constantly monitored and evaluated depending on their daily activities whether their activities are positive or negative (Botsman, Rachel). From this, a citizen score, ranging from 350 as the lowest to 950 as the highest, would be generated. This provides information to other citizens showing if somebody is trustworthy (Campbell, Charlie). The score would be publicly ranked against the 1.3 billion citizens of China and will determine everything in their lives. Some examples include their eligibility for a job or where their children will go to school. By 2020, every citizen will have to participate whether they approve of this system or not (Botsman, Rachel).

Before the social credit system, cash was the biggest payment method used in China where only 1 in 3 citizens had a bank account. Since China went from extreme poverty to being the world’s No. 2 economy, they never had a chance to develop credit history (Campbell, Charlie). Therefore, people would be able to default on loans and sell counterfeit goods with little to no repercussions. In 2015, the government allowed eight companies to run a test trial to see if this system is possible (Campbell, Charlie). According to the Chinese government, the biggest goal they wanted to accomplish would be to “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step” (Elgan, Mike).

With over 200 million surveillance cameras that uses facial recognition, they detect when citizens are not being compliant with China’s rules and regulations. Both private companies, one being Sesame Credit, and the government, can collect data of citizens and use this information from their databases and rate citizens accordingly (Marr, Bernard). Alibaba, an online shopping site, collects purchase data from its 1 billion users and judges them according to the types of products bought. If a citizen purchases video games, they are perceived as an idle person and therefore get a lower score. On the other hand, if a citizen purchases diapers, they are considered to be a parent and therefore show they are responsible and so get a higher score (Botsman, Rachel).

Around 80% of Chinese citizens who partook in a social credit survey either somewhat or strongly approved of having this system implemented in China. The wealthier and higher educated citizens are believed to be the ones who strongly approve of this system. They believed these changes promote good behavior and protect them from fraud and bad businesses (Marr, Bernard). While citizens believe the system is great, the Chinese government believes that students and households with low income will be able to benefit from the system. They will be able to raise their citizens score and therefore acquire better jobs which will improve their quality of life (Botsman, Rachel). A professor from the Capital Normal University in China, Wang Shuqin, stated that she supports the government implementing this system and refers it to “China’s social faithful system”. Since citizens are now able to verify the creditworthiness of each other, business contracts are more than likely to be kept and little to no risky moves can be done (Botsman, Rachel). Therefore, the economy will be able to expand, be more competitive, and no businesses will be hurting the process.

Although this system promotes honesty and integrity, black markets give rise for ways that citizens are able to manipulate and boost their citizens score. Chinese citizens can pay hackers to change their score and sometimes, hackers can steal information and sell them for their own benefit (Botsman, Rachel). The government intends to limit free speech since they believe that when a citizen “spreads rumors’” about the government, they should be penalized. Therefore, citizens aren’t able to practice freedom of speech online and in person as this can lower their citizen score (Campbell, Charlie). Since the Chinese government publicly shames their blacklisted citizens, many believe this will lead to abuse of power. The government has the ability to expose and punish people with low social score which doesn’t give fair treatment, or due process, to all citizens of China (Zeng, Meg J.). In some provinces, they display citizens using screens in public areas to shame them while other provinces will remotely change your dial tone to say “the person you are calling is a dishonest debtor” (Zeng, Meg J.)

Ethical Analysis

Hedonism discusses that a life is good if it’s filled with pleasure and free of pain. A good life involves happiness, which can improve one’s welfare and quality of life and that by limiting unhappiness in our lives, it shall reduce misery. With the social credit system, Chinese citizens are able to improve their scores, which can lead to more happiness in their lives. Since they are able to acquire more with a higher score, citizens would strive to become the best, so they can take advantage of the good benefits. On the other hand, hedonism may limit autonomy, which gives the power to control our own lives with free choice. Using paternalism, China imposes limits that infringes on citizens liberties against their will but for their own good. Though paternalism can provide happiness, it still limits free choice which in turn could make citizens miserable. Many citizens may feel they are not able to be their own authentic self since the government, to an extent, is controlling them. Hedonism would most likely agree with China implementing this system because good behavior and trustworthiness can promote happiness since the government’s goal is to eliminate fraud and reward the citizens who are contributing to society.

Consequentialism preaches that people should do as much good as they can that best produces good overall results. A moral theory under consequentialism would be act utilitarianism, which states that well-being is the only thing that is essentially valuable. Consequentialism would most likely agree with this system since the government believes it will improve the well-being of others. With the system, low-income citizens and students are able to rise above and be able to show that they are credible and honest, which will help them rank higher in society. Since the system affects all Chinese citizens, it produces the greatest good for the greatest number. Every citizen has the advantage of acquiring the highest score possible, which will maximize the goodness in society. On the other hand, consequentialism wants us to measure well-being where somebody adds up all the benefits a choice produces, add up all the harm it causes, find its balance, and then determine if the balance is worth the action. Since Chinese citizens are given a score based on their daily activities, it seems unfair to judge citizens vigorously based on their actions. Sometimes people can’t decide all the good and bad of an action before they commit it since it would require time before resulting in a conclusion.

The Kantian perspective, which follows deontological ethics, believes that it’s not about the consequences that arise from actions, whether they be right or wrong, but about the motive that is carried out by the person. Since this is the case, China’s social credit system goes against Kant’s perspective. With the system, the government does not investigate why somebody did what they did, but bases a citizen’s score on whether they did the right or wrong act. Therefore, this would not be fair for citizens who have a low score for a reason. For example, if a citizen were to have a death in the family and become depressed, they might buy alcohol and resort to drinking heavily. Buying alcohol will significantly reduce the citizens score and therefore limit them and buy other products they may need like purchasing a plane or train ticket. If the government were to see these transactions, they would not care that he was drinking to suppress his feelings.

Conclusion

In 2014, China decided to implement a social credit system for its citizens that will reward citizens for being trustworthy and honest and discredit citizens for being dishonest. Six years later, the system is close to completion that soon, everyone living in China will have to partake in the social credit system. The reason for this system in China is due to citizens not having bank accounts therefore others do not know if they are trustworthy. Personally, I believe this social credit system is a good idea because if you are a citizen with a good score, you are able to be rewarded with benefits that will improve the quality of life.

The world, as we know it now, has witnessed a gigantic transformation from the discovery of chemicals and gases to the current situation when the same have become a threat to life on the planet. This transformation has resulted in, perhaps the greatest untackled issue of modern life that is, climate change. Climate change highly owes its existence to the uncontrolled massive emissions of greenhouse gases, especially carbon. When more and more quantities of greenhouse gasses are exposed in the environment, a greater amount of heat gets trapped in the planet’s atmosphere. This results in a threatening increase in the world temperature, thus destabilizing the climate. In 2019, 36.81bn tons of carbon was emitted into the atmosphere. China is the world’s largest emitter of greenhouse gases in the current time period. It emits twice as much as the United States of America, which is the second largest emitter of CO2. The United States is followed by India, Indonesia and Russia. India being the third largest producer or carbon, emits 7% of the world’s total emissions.

World leaders realized that carbon was increasingly becoming a hazard to the global environment and was not an issue faced by any one nation. In 1997, the Kyoto Protocol was adopted by countries. The mission aimed at reducing CO2 emissions and other greenhouse gases from the atmosphere. As a result of this protocol, carbon banks or carbon trading systems was introduced. In 2001, 191 countries ratified the protocol. A carbon bank is an individual, non-profit organization aimed at carbon sustainability. To achieve this goal, a carbon bank gives out carbon credits to those businesses, industries and even countries that emit carbon dioxide more than the prescribed amount.

A carbon credit is a term given to any tradable certificate or instrument that gives a permit or right to the holder to emit carbon. These carbon credits are purchased by institutions who emit more than what is authorized. For example, a business that generates 100,000 tons of greenhouse gas emissions a year. The government passes a law to limit emissions to 80,000 tons. Now the firm can either reduce its carbon emissions or buy carbon credits to offset the excess, from carbon banks legally authorized to sell credits. Thus, a firm has to pay a price in order to produce more than the permitted amount of carbon, like the World Carbon Bank Finance Unit created by the World Bank. One Carbon credit gives a sanction to produce one ton of CO2. According to the Environmental Defense Fund, that is the equivalent of a 2,400-mile drive in terms of carbon dioxide emissions. It can also be said that these credits are like fees or penalties for producing excess amounts of carbon. This mechanism is used by carbon banks to discourage production and thus reduce the carbon release.

Carbon credits are broadly divided into two types: voluntary emissions reduction (VER) (these credits are created by voluntary institutions through scientifically developed programs) and certified emissions reduction (CER) (these credits are mandatory credits tied to verified projects).

The exchange of carbon credits is known as carbon trade. This carbon trade can take place between individuals, firms and even countries. The world’s biggest carbon trading system is the European Union Emissions Trading System (EU ETS).

In order to purchase carbon credits, each credit requires a price value. The system of allocating prices of carbon units is known as carbon pricing. The current price of carbon is $20.81 USD. Market factors of demand and supply play a significant role in the determination of these prices. Moreover, prices are set by mainly by two methods:

• Emissions trading systems (ETS) cap and trade system: This mechanism caps the total amount of carbon emissions and these caps are reduced every year at a rising scale. Firms who do not produce very high amounts of carbon dioxide are permitted to sell the credits they did not use for themselves, to those businesses who emitted large amounts. This is how demand and supply are generated in the Carbon Market.
• Carbon tax: carbon tax is one of the most efficient methods of carbon pricing and reducing carbon emissions. These are directly imposed taxes on the production of carbon. A total of 25 countries worldwide impose taxes on carbon including the EU, Canada, Singapore, Japan, Ukraine, Australia, Sweden, Chile, and Argentina.

Recently, the implementation of emission trading for environment’s benefits has been on the rise at different scales. This arrives with three remarkable merits on specific arenas: environment, economy and public policy. Environmental efficiency related advantages of this policy seem to be irrefutable. Not only does it ensures the transparency of emission reductions targets, but carbon trading also increases the chance of realizing mid to long-term committed ambitions through imposing a cap to ward the approach off pernicious external factors. In addition, economy can take advantage a lot from the adoption of this instrument. With the flexibility in buying and selling allowances, an entity obtains much eagerness in mitigating their emission, as well as golden opportunities to generate greater revenues and attract other financial streams, remarkedly as to small and medium-sized companies/countries. Such incentives are likely to bring the low-carbon industry into sharp focus, thus paving way for the uprising of decarbonization and colossal advancements in technology with less carbon footprints. In terms of society, emissions trading system will probably do wonders for societal well-beings.

The operation of emissions trading has also coincided with many real challenges, however promising such an avenue is. Case in point, the validity of old CDM (the Clean Development Mechanism) credits under the Kyoto Protocol’s market could translate into a surplus of credits, as in many cases they have not yet been issued although companies have managed to limit pollution. The public has come to cast doubt on the actual environmental efficacy of such an ambitious scheme as a result. Additionally, double counting is another hindering factor, when a country that sells carbon credits still declare its emissions reduction after the deal has been signed, which represents the need for a more watertight set of rules to reach a consensus.

Meanwhile, determined efforts will have to be made if nations worldwide are to guarantee the achievement of initial climate targets, as well as restricting aberrant motives that act as a preclusion to raising ambitions. The entitlements of local stakeholders also require meticulous consideration, while at the same time governments should exert themselves to prevent detrimental impacts on the environment and committing to sustainable development objectives.

While banks would prefer an limitless potential for creating deposit to make bigger profits, there are many limitations. These limitations make the system of developing deposit non-profitable. The barriers of the deposit advent technique will be discussed in this essay.

Amount of Cash

Affects the advent of credit with the aid of business banks. Higher the money of business banks in the shape of public deposits greater will be the savings creation. However, the quantity of money to be held by means of business banks is managed by way of the central bank. The central bank may also amplify or contract cash in commercial banks by way of buying or promoting authorities securities. Moreover, the deposit introduction capability depends on the charge of amplify or limit in CRR by using the central bank.

CRR

This refers to a reserve ratio of cash that wants to be kept with the central financial institution by business banks. The principal cause of retaining this reserve is to fulfill the transaction desires of depositors and to ensure the safety and liquidity of business banks. In case the ratio falls, the savings introduction would be greater and vice versa.

Leakages

Imply the outflow of cash. The credit creation process may go through from leakages of cash. The one-of-a-kind types of leakages are mentioned as follows:

• Excess Reserves. Takes area typically when the economic system is moving towards recession. In such a case, banks may additionally decide to keep reserves instead of making use of dollars for lending. Therefore, in such situations, credit created by means of commercial banks would be small as a giant quantity of cash is resented.
• Currency Drains. Imply that the public does now not credit score all the cash with it. The customers may additionally preserve the money with them which impacts the savings advent with the aid of banks. Thus, the potential of banks to create savings reduces.

Availability of Borrowers

Affects the deposit advent through banks. The credit score is created through lending money in structure of loans to the borrowers. There will be no savings advent if there are no borrowers.

Availability of Securities

Refers to securities against which banks furnish the loan. Thus, the availability of securities is fundamental for granting loans in any other case credit creation will no longer occur. According to Crowther, “the financial institution does now not create money out of thin air; it transmutes different forms of wealth into money”.

Business Conditions

Imply that credit score advent is influenced via the cyclical nature of an economy. For example, credit score introduction would be small when the financial system enters into the melancholy phase. This is because, in the despair phase, businessmen do not prefer to make investments in new projects. On the other hand, in the prosperity phase, businessmen strategy banks for loans, which lead to deposit creation.

Restriction by the Central Bank

If the banks have massive deposits, they can create more savings and if they have small deposits then their power of credit score introduction will be limited. While we recognize the commercial financial institution has the monopoly of word issue, if the central financial institution increases the volume of money the deposits of business banks will expand and they will make bigger the quantity of savings in the inquiry. On the different hand, if the supply of cash decreases, the volume of savings also decreases. Anyhow the savings advent strength of the industrial financial institution is immediately affected by way of the policy of the central bank.

Habits of the Customers

The electricity to create credit by using the business banks is very a lot influenced by the habits of the people residing in that country. If the humans are ordinary in using the cheques then the quantity of credit will enlarge on the other it will be contracted.

The Cash Ratio

Every bank keeps adequate money reserves for assembly the cash necessities of its customers. The financial institution will no longer allow its money ratio to fall beneath a certain minimum level. When this stage is reached then the bank will now not increase the money.

The Collateral Security Available

The bank advances loans to the debtors towards some type of collateral security. If these are now not handy then the electricity of deposit introduction will be restricted.

Conclusion

Despite its limitations, it can be concluded that credit score advent by way of industrial banks is a tremendous source for generating income. There is a negligible chance of the loans turning into horrific debts. The hobby charge that banks cost on loans and advances is increased than the interest that the bank gives to depositors for the money deposited in the bank. Hence, we can say that the obstacles of credit introduction function through shifts in the balance between liquidity and profitability. If the banks are unwilling to make use of their surplus dollars for granting loans, then the financial system is headed in the direction of recession. If the public withdraws money and holds it with themselves, then it reduces the bank’s energy to create credit.