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Class10 Eco3 Money and Credit

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65 views8 pages

Class10 Eco3 Money and Credit

Uploaded by

deepak.5718.7b
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FLOW-LEARNING

Types of Credit

Formal sector Informal sector


E.g. Banks and E.g Money lenders,
cooperatives traders, employers,
relatives, friends.

WORDS THAT MATTER


.Medium of exchange: Money acts as an intermediate in the exchange process.
Double coincidence of wants: When in the exchange, both parties agree to sell and
buy each other's commodities.
Demand deposits: The deposits in the bank accounts that can be withdraw on demand
.Cheque: It is a paper instructing the bank to pay a specific amount from the person's
account to the person in whose name the cheque has been issued.
Credit: The term refers to an agreement in which lender supplies the borrowers with
money, goods and services in return for the promise of future payments.
Debt-trap: At times repayment of the loan becomes difficult and credit instead of improving
the eanings, pushes the borrower into a situation from which recovery is very difficult
and painful. This situation is called debt-trap.
Collateral: It is an asset thatthe borrower owns such as land, building, vehicle, livestocks
and deposits with banks and this as
uses a guarantee to a lender until the loan is repaid.
Depositor: Person who deposits money in the bank.
Borrowers: People who takes loans from the bank.
.Lender: A person who gives money to a borrower.
.Reserve Bank of India: The supreme institution of the financial system.
.Formal sector loans: Loans from banks and co-operatives.
Informal sector loans: Loans taken from money lenders, traders, relatives and friends.

NCERT TEXTBOOK QUESTIONS SOLVED


Q1. In situations with high risks, credit might create fiurther problems for the borrower.
Explain.
Ans. At times repayment of the loan becomes difficult and credit instead of improving the
earnings, pushes the borrower into a situation from which recovery is very difficult
and painful. This situation is called debt-trap. Then the borrower is forced to
give
up his collateral or asset used as the guarantee to the lender.
Q2. How does money solve the problem of double coincidence of wants? Explain with an
exampleof your own
Ans. () In a barter system, commodities are exchanged with commodities without the
use of money. But in this type of exchange, both parties have to agree to sell and
buy each other's commodities. This is called double coincidence of wants.
Money solves the problem of double coincidence of wants by acting as a medium
of exchange. The transactions are made in money because a person holding money
can easily exchange it for any commodity or service that he or she wants.
(i Suppose an ice cream vendor wants a bicycle but the bicycle manufacturer wants
clothes, and not ice creams. In such a situation the vendor can use money to
obtain a bicycle. In the same way, the bicycle manufacturer too will use money to
buy clothes.
03. Hou do banks mediate between those who have surplus money and those who need
money?
Ans. () Banks keep only a small proportion of their deposits as cash with themselves,
as a provision to pay the depositors who might come to withdraw from the bank
on any given day.
(i) They use their major portion of the deposits to extend loans, mediate between
those people who have surplus funds (depositors) and those who are in need of
those funds (the borrowers).
(ii They charge higher rate of interest on the loans than what they offer on deposits. The
difference between what is charged from borrowers and what is paid to depositors
is their main source of income.
4 Look at a 10-rupee note. What is written on top? Can you explain this statement?
AS.If we look at a 10 rupee note, we find the following words.
RESERVE BANK OF INDIA
Hrrfr fd 000 00G000
Guranteed by the Central Government
I promise to 0
pay the bearer PECCN

the sum of
Ten Rupees 000 000000

Signed
Governor of the Reserve Bank

A ten-rupee note has "Reserve Bank


of India" written on the ton
DXplanation:
followed by a statement "Guaranteed by the Central Government". It is a promissory
note and can only be issued by the Reserve Bank of India which supervises all
money-related functions in the formal sector in India. The statement on the ten
rupee note relates to this idea that the RBI is the central organ in the working of

money-related activities.
Q5. Why
Wh do uwe need to expand formal sources of credit in India?
Ans
1 ) Com pared to the formal lenders
most of the intformal
the cost to
lenders
charge
the borrower of the
a mue
info mal
that
loans. It means
nigher interest on

l0ans is much higher.


larger part of earning of the bor
orrowers is use
i Hig
igher cost of borrowing
have
means a
less i n c o m e left for themselves.
O
repay the loan and they can mean that the amount to be
of borrowing
r . .

The high rate of interest borrower and this could lead to increasinc paid is
of the
greater than the income
debt-trap. to start
an enterprise by borrowing may not d so because
liu People who might wish
t h e high cost of borrowing
and
atives need to lend more. This wo
cooperat.
) For thes
se reasons
banks
ould then borrow cheaply for a ead to
higher incomes and many people
coul
variety of
needs.
MONEY AND O
(vi They could grow crops, do business, set up smal|-scale industries, etc. They cout
set up new industries or trade in g0ods.
ould
(vinCheap and affordable credit is important for the country's development. Hence
it
is necessary to expand formal sources of credit in our country.
Q6. What is the hasic idea hehind the SHGs for the poorP Explain in your ouwn words
Ans. consist of certain members who their savings
Self- Help Groups
constitute a fund
(SHGs)
which is further used in making finance
pool and
and advances to othe
members. This helps to reduce the functioning of informal sectors of credit. The
SHGs heclp borrowers overcome the problem of lack ofcollateral. They can get timely
loans at a reasonable intercst rate. They help women to become self-reliant.
97. What are the reasons why the banks might not he willing to lend to certain horrowers
Ans. The banks are sometimes not willing to lend to certain borrowers because of the

following reasons
() Some persons are not able to produce certificate of their earning.
(i There are some people who have a history of non-repayment of loans.
(ii) There are other people who are not able to produce documents of their employment
(u Some persons have nothing to give to bank as collateral
(v) There are a few others who fail to produce two persons who can stand as surety
in case he is unable to repay the loan.
98. In what ways does the Reserve Bank of India supervise the functioning of banks
Why is this necessary?
Ans. (i) The Reserve Bank of India supervises the functioning of formal sources of loans
(i) It monitors the banks in actually maintaining cash balance.
(1i) It sees that the banks give loans not just to profit making businesses and traders
but also to small cultivators, small-scale industries, to small borrowers, etc.

(iu) Periodically banks have to submit information to the RBI on how much they are
lending, to whom, at what interest rate, etc.
99. Analyse the role of credit for development.
Ans. (i Credit refers to an agreement in which lender supplies the borrowers with money
goods and services in return for the promise of future payments.
) Whether credit will be useful or not, depends
upon the risks in the situation an
on whether there is some
support in
case of loss.
(in When a borrower takes a loan from the bank for increasing the production of goods
and it and pay the loan back to the bank within
he/she isable to increase
given tine limit, then credit has played a positive role in making him/her
the
Also see Q.13. wealt
(Short Answer Type questions)
Q10. Manav needs a loan to set up a small business. On what basis will Manav dec
whether to borrouw from the bank or the moneylender? Discuss.
Ans. Manav needs a loan to set up a snall business. Manav will decide on whether to
borrow from the bank or the moneylender on the basis of various factors:
() Firstly, he must have a collateral or asset which can guarantee his loan. If he lacks
such an asset, he can't get a loan from the bank. In this scenario, he will have to
go to a moneylender, even though the latter charges a higher interest rate.
(i) Secondly, if Manav is not aware of the banes of borrowing from the informal secto
he might not even consider taking a bank loan.

454 SocIAL SCIENCE-X-


i Thirdly, if there are no banks in or near his area of residence or work place, then
he will borrow from a moneylender.
011.In India, about 80 per cent of farmers are small farmers, who need credit for
cultivation.
la) Why might banks be unwilling to lend to small farmers?
b) What are the other sources from which the small farmers can borrow?
( Explain with an example how the terms of credit can be unfavourable for the small
farmer
d Suggest some ways by which small farmers can get cheap credit.
Ans. (a) Banks might be unwilling to lend to small farmers because they usually lack
proper documents and collateral or asset.
b) The other sources from which the small farmers can borrow are moneylenders,
relatives or friends, self-help groups and cooperative banks.
The terms of credit can be unfavourable for the small farmers if he has a bad
crop,
and is forced to either surrender his collateral (if he borrowed from a bank) or sell
off a part of his land (if he borrowed from the informal sector), in order to repay
his loan.
a Self-help groups and cooperative banks do not require collateral as a guarantee:
hence, they can provide cheap credit to the small farmers.
Q12.Fill in the blanks:
)

Majority of the credit needs of the households are met from informal
. ...
sources.
c o s t s of borrowing increase the debt-burden.
(im .. 1Ssues currency notes on behalf of the Central Government.
Banks charge a higher interest rate on loans than what they offer on ..
. is an asset that the borrower owns and uses as a guarantee until the loan
Is
repaid to the lender.
ns. () poor (in Reserve Bank of India
(ii) High
(u) deposits (u) Collateral.
G.Choose the most appropriate answer.
1 In a SHG most of the decisions regarding savings and loan activities are taken by

a) Bank (b) Members (c) Non gOvernment organisation


Formal sources of credit does not include
(a) Banks (b) Cooperatives (c) Employers
Ans. (-{b) (i)-().
PRO I nITY
ADDITIONAL QUESTIONS SOLVED
I Multiple Choice Questions (MCQs) (c) When the loan repayment is done
on time and profits are made.
1.Who supervises the functioning of|
formal source of loans? (d) None of the above
(a) Reserve Bank of India 4. Why is money called the medium of
(b) State Bank of India exchange?
(c) Central Bank of India
(a) Goods are being bought and sold
(d) Informal money lenders with the use of money.
2. What portions of bank deposits are
(b) Use of money has made things
kept by the banks for day to day easier to exchange.
transactions?
(c) Money acts as an intermediate in
(a) 11%% of the deposits
(b) 15% of the deposits the exchange procesS.
(c 18% of the deposits (d) Without exchange of money
(d 17%% of the deposits nobody can fulfil all his needs and
3. When does credit play a positive role? requirements.
(a When the loan repayment is not 5. In India which type of currency is widely
done on time but profits are made. accepted as a medium of exchange?
(b) When neither loan repayment is (a) Rupee (b) Dollar
done on time nor are profits made.
(c) Shilling (d) Taka
6 .Modern form ofmoney is linked uwith 93. Recognise the situation when both
which s y s t e m ? the parties in
barter economy have
a
a) Accounts system to agree to sell and
buy each other's
b) Finance system commodities. What is it called?
Banking system CBSE 2016]
Ans. This is known as double coincidence
d None of these of wants.
7.What are electronic banking services?
04. What is meant by double coincidence
a) ATM (b) Debit Card
of wants? CBSE 2015]
c Credit Card (d) All of these
Ans. When in the
8.What do people belonging to poor
exchange, both parties
agree to sell and buy each other's
households lack commodities, it is known as double
a) Proper document coincidence of wants.
(b) Collateral Q5. What is it that can act as a medium of
( Certificate of earning exchange in transactions?
d) All of these Ans. It is money that can act as a medium
9.Currency notes in India of exchange in transactions.
are issued by
the Q6. Name two objects that were used as
(a) State Bank of India money before the introduction of coins.
b) Reserve Bank of lIndia Ans. Grains and cattle.

Central Bank of India Q7. What are the modern forms of money?
d None of these Ans. The modern forms of
money include
l0. Which one currency paper notes and coins.
of the following does not
Q8. What is the chief feature of the modem
Come under terms of credit?
la) Interest rate currency?
Ans. The modern currency is without
b) Employment any
use of its own.
c Collateral
Q9. What do people do with extra money?
d Mode of repayment Ans. They deposit it with the banks by
Ans. 1-(a)
2-(b) 3- 4-(c opening a bank account in their name.
5-(a) 6- 7-d 8-() Q10.Why do we consider demand deposits
9-b 110-(b) as money?
Ans. Demand deposit constitute money in
.Very
:

Very Short Answer Type Questions modern economy as they are


accepted
What is the meaning widely as a means of payment along
of barter system with currency.
CBSE 2015
Ans.Thehe exchange of goods, property, Q11.What is the major source of revenue
ervices, etc. for other goods, etc. for the commercial banks?
Ans. The
without using money is known as major source of revenue is the
difference between what is
2 barter stem'.
v e the reason why transactions are from borrowers and what is charged
paid to
made in money. depositors.
Or Q12.What do banks do with the
money we
How does money act as a medium of deposit there?
An Exchange? CBSE 2015 Or
person holding money can easily How do the deposits with banks
Cxchange it for commodity or service become their source of income?
that he/she might want.
Delhi 2016]
interest rate 920. What is crucial for the count
Ans. Banks charge higher derelopment ?
on loans than what they offer on

deposits. The difference of interest isAns. Cheap and affordable credit is cru
the main s o u r c e of income of banks for the country's development rucial

Q13. Why do people in nural a r e a s demand 021. Which segment of the society receet1e
formal credit?
for credi
Ans. They demand for credit f0r crop Ans. It is the richer segment of sorie
which receives formal credit
production
the lender do in case the 922. Which segment of the society depend
Q14 What would
borrouer fails to repay the loan? on the formal sources)
Or Ans. The poor depend on the forma
sources.
Whu do lender ask for collateral while
Q23. Mention one of the major reasn
iendng which prevents the poor from getting
Ans.1f the borrower fails to repay the loan.
the lender has the right to sell the bank loans.
asset or collateral to obtain payment. Ans. Absence of collateral is one of the
major reasons which prevents
Q15. G1ue some common examples of
collateral used for borrouing.
poor from getting bank loans.

Ans. Property such as land titles, deposits Q24. What are the difficulties from which
with banks. livestock are some barter system of exchange sufers
common examples of collateral used Ans. () Lack of double coincidence of wants
for borrowing (1) Valuations of all the goods cannot be
Q16. While taking a loan, borrowers look done easily.
for easy terms of credit. What does its (m) Certain products cannot be divded
mean? Q25. What are the benefits that you can
Ans Its means low interest rate, easy by depositing your extra money tn
conditions for repayment and less banks
collateTal and documnentations Ans. () Safety
Tequirements () Earn interest
917 People obtain loans from various ( t ) Can make payments easily threu
tsources Name them
Ans
cheques
Formal sector Banks and Q26. How do the SHGs help
oooperatives borroueT
lnformal sector Muneylenders, Ans. The SHGs help borrowers overc
Uaders cnployeIb, Telatives, fnends the problem ot lack of collatera
Q18 Hou du the 1nfurmul lenders take Q27. How does money ehminate the
uthduc net
udvuntuge uf Ife burrowers for double cotncidence of uan
helpieshfiebbr CBSE 2ul
Ans. They chargr high nteicsl n loas Ans.If we have money in our pocket we
As a result he 0sl tu Ue lornower Purchase any thing at anvtime as*
of iniomal luaiib ib alau Very hugh WIsh
Q19. What does hugher oost of borowing 928. What the two
are
forms of mo
mean?
currency CBSE 2
Ans. This means a largr part of the earnings Ans. Two form of modern currency a
of the borrowers 1s used to Iepay the 19 Paper notes
loan. Hence, borTOwers have less
( Coins
Q29. Why one cannot
refuse a pant
income left for thhemselves LCade n
npees in India?[CBSE 2
One cannot efuse a
payment made
Ans.

in rupees because it is accepted as


a medium of exchange. The currency
is authorized by the government of
India
030. Why do banks maintain cash reserves
CBSE 2016|
Ans. Banks maintain cash reserve to arrange
for daily withrawals by depositors.
g31. Prove with an argument that there is
a great need to expand formal sources
of credit in rural India. CBSE 2016|
Ans. To expand formal sources of credit in
ural India, dependence on informal
sources of credit has to be reduced.
Q32. Why are most of the poor households
deprived from the formal sector of
loans? [CBSE 2016]
Ans. They are deprived from the formal
Sectors of loans due to illiteracy and
lack of collateral. They cannot fulil
the formalities of the formal sector of

loans.
933. Why
Why i s the supervision of the

o/ loans
Junctioning of formal sources

necessary CBSE 201o


to
. IIt i1s
s because banks have
necessary
the RBl on how
Submit information to
to whon they are
Inuch they are lending,
interest rate. etc
what
lending and

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