1.1 The Cycle of Money
Say you borrow $5 from a friend today and repay it a few days later. Your friend (the lender) is willing to forgo the use of the $5 for a temporary period while you (the borrower) need the $5 for a purchase today. You will be able to return the $5 in a few days and thereby repay the loan. Both parties benefit from the arrangement: your friend is able to help a friend in need, and you are able to spend $5 at a time when you are short on cash.
The finance function of borrowing and lending is usually much more complicated than this scenario, but the objective of these types of transactions is always the same: to make both parties better off. The movement of money from lender to borrower and back again is called the cycle of ...
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