Treasury Finance and Development Banking: A Guide to Credit, Debt, and Risk, + Website

CHAPTER 8

Conclusion

We have reached the end of our discussion and it is probably useful to now draw some conclusions from such a disparate array of topics. These have been multiple and not always connected to each other in an immediately apparent way: We have striven to show, in the introduction and at the beginning of each chapter, the links between them, but it would be important to once more discuss why we have touched upon these concepts.

8.1 CREDIT IS EVERYWHERE

If one and one thing only should have transpired from our discussion, it is that any aspect of any financial activity can be related in some more or less immediate way to the concept of credit. The next tangible step from saying that credit is connected to a financial transaction is to say that credit will affect its value. From what we have learned we can highlight two fundamental ways (two sides of the same phenomenon) in which credit plays a role in the valuation of a financial instrument: one that becomes manifest through ourselves and one through our counterpart.

The first manifestation of credit is the fact that, most of the time, in order to begin any financial activity we need to borrow liquidity, and this funding activity reflects our own credit. We have seen explicitly how this works in Chapter 6 where the funding activity of an institution has been discussed at great length.

The second manifestation of credit is the view we take of our counterpart, and we let the term counterpart take a very general meaning ...