(a) Identify and describe two aspects
of firms' credit policy. (b) Identify one difference in
the credit policies of different firms and explain why this
difference may be important to consumers. (c) Can a firm's
credit policy hurt it? Explain. (d) Explain why many large
firms (e.g., Sears Department Store and General Motors
Corporation) have their own financial subsidiary. (e) Will
sales by firms through the Internet shopping networks
increase much, once a safe, well-functioning, standardized,
easy-to-use system has been developed for credit purchases?
Explain.

Solution Preview

(a) Identify and describe two aspects
of firms' credit policy.
One aspect of the firms' credit policy is the time for which it gives credit and the amount up to which it gives credit to customers. The time refers to the duration for which credit is given and the amount is the sum total of credit granted to each customers.
(b) Identify one difference in
the credit policies of different firms and explain why this
difference may be important to consumers.
One difference in the credit policies of different firms is the period of time for which each firm gives credit. From the perspective of customers the larger the duration for which it gets credit is more attractive because it helps reduce their need for working capital (business customers). On the other hand if a seller does not give any credit to the customer, the customer has to pay in cash and this puts an immediate strain on the cash resources of the consumers. In case of consumer if credit is ...

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