CBSE Class 10 Economics Chapter 3 Money and Credit NCERT Solutions
- Barter system: The system of exchanging goods is known as the barter system.
- Double coincidence of wants: It means both parties i.e the buyer and the seller have to agree to sell and buy each other’s commodities.
- Cheque: It 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 made.
- Cash Reserve Ratio: Banks always keep some part of the total amount deposited as a cash reserve to meet the needs of the depositors. That part of the total deposits which the bank keeps with itself in the cash form is called Cash Reserve Ratio.
- Credit (loan): It refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
- Formal lender resources: These include those resources which are controlled by the government. Banks and cooperatives fall into the formal category.
- Informal lender resources: These include moneylenders, traders, relatives and friends.
- Money: Anything that is generally accepted as a medium of payment for goods and services.
Question Bank for Money and Credit Chapter 3 Class 10 Economics
Very Short Answer Type Questions(1 Mark each)
Q.1 What is a bank?
A. A bank is an institution that accepts the surplus deposits and grants loan to the people or businessmen.
Q.2 Why transactions are made is money?
A. Because money is easily acceptable. A person holding money can easily exchange it for any commodity or service that he or she might want.
Q.3 Mention the most essential features of the barter system.
A. Double coincidence or wants.
Q.4 Why money is called a medium of exchange?
A. Because it acts as an intermediate in the exchange process.
Q.5 What is the barter system [CBSE 2015(D)]
A. The system of exchanging goods is known as the barter system.
Q.6 Mention any two products which were used as a medium of exchange before the invention of money.
Q.7 Mention the modern forms of money. How it is different from traditional forms of money?
A. Paper notes, coins and demand deposits constitute the modern money.
Traditional forms of money which included gold and silver had its won value whereas modern currency is without any use of its own.
Q.8 Why people deposit money in bank? Give two reasons.
A. (i) People’s money remains safe with the banks.
(ii) They earn interest on their deposits.
Q.9 Name the organization which issues currency notes in India on behalf of the Central Government.
A. Reserve Bank of India.
Q.10 Mention a major source of income for the banks.
A. The difference between what is charged from the borrower and what is paid to depositors is the main source of income for the banks.
Q.11 What are demand deposits?
A. The deposits with the banks which can be withdrawn on demand are known as demand deposits.
Q.12 What is included in the modern form of money?
A.(i) Currency (ii)Demand Deposits
Q.13 Mention any two functions of banks?
A. (i) They accept deposits.
(ii) They advance loans.
Q.14 Mention any two items which can be used as collateral.
A. Land and buildings.
Q.15 Mention any two main sources of credit for rural households.
A.(i) Cooperative and Commercial Banks.
(ii) Professional and agriculture money, lenders.
Q.16 Poor household are still dependent on informal sources of credit ;.Give reasons.
A.(i) Banks are not present everywhere in rural India.
(ii) Getting a loan from banks is much more difficult than taking a loan from informal sources.
Q.17 Define credit.
A. It is an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
Q.18 What is debt trap? Mention any two factors responsible for debt trap.
A. It is situation under which borrower is unable to repay the loan and this pushes the borrower into a situation from which recovery is very painful;.
(i) Failure of crops
(ii) Using credit for non-productive purposes.
Q.19 Define terms of credit.
A. Interest rate, collateral and documentation and the mode of repayment together comprise what is called the terms of credit. The terms of credit vary substantially from one credit arrangement to another. They may depend on the nature of the lender and the borrower.
Q.20 Define formal sources of credit.
A. Interest includes those resources which are controlled by the government. Banks and cooperatives are two important formal sources of credit category.
Q.21 Define informal sources of credit.
A. These include those resources which are controlled by the government. Banks and cooperatives are two important formal sources of credit category.
Q.22 Name the organization which supervises the functioning of formal sources of credit.
A. The Reserve Bank of India.
Q.23 Which is the main source of credit for the poor? Give one reason.
A. Informal sources like money lenders, traders relatives etc. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.
Q.24 Prove with an argument that there is a great need to expand formal sources of credit in rural India.[CBSE 2016(O)]
A. Very high percentage of people depend on formal sources of credit, so there is urgent need to expand formal sources of credit in rural India.
Q.25 Why are most of the poor households deprived from the formal sector of loans? [CBSE 2016(O_]
A. Due to a lack of collateral.
Q.26 How do the deposits with banks become their source of income? [CBSE 2016(D)]
A. Because these deposits are used for lending and through lending banks earns interest.
Q.27 Why one cannot refuse a payment made in rupees in India? [CBSE 2016(D)]
A. In India, the legalized use of rupee as a medium of payment that cannot be refused in setting transactions in India.
Q.28 How does money eliminate the need of double coincidence of wants? [CBSE 2016(F) Comptt.]
A. By acting as a medium of exchange.
Short Answer Type Questions(3 Mark each)
Q.1 What double coincidence of wants? Explain with the help of an example. [CBSE 2015(O)]
Explain double coincidence of wants with the help of an example.
A. The double coincidence of wants mean both parties, i.e, the buyer and the seller have to agree to sell and buy each other’s commodities Take the case of shoes in the market, and buy wheat. The shoe manufacturer will first exchange shoes that he has produced for money, and then exchange the money for wheat, Imagine how much more difficult it would be if the shoe manufacturer had to directly exchange shoes for wheat without the use of money. He would have to look for a wheat growing farmer who not only wants to sell wheat but also wants to buy the shoes in exchange. That is both parties have to agree to sell and buy each other’s commodities.
Q.2 Analyse the role of money as a medium of exchange.
Explain money as a medium of exchange.[CBSE 2015(O)]
How can money easily exchange it for goods or services? Give an example to explain.[CBSE 2016(D)]
A.(i) The medium of exchange is an important function of money. It means that money acts as an intermediary for the goods and services in an exchange of transactions. The use of money as a medium of exchange has removed the major difficulty of double coincidence of wants in the barter system.
(iii) The medium of exchange function of money implies that money is generally acceptable by the people. They can buy goods and services they need for using money. That is money facilities multilateral trade.
(iii)Money also offers economic freedom to the people.
Q.3 What is currency? Explain any three features of modern Indian currency.
A. A currency is a unit of exchange, facilitating the transfer of goods and /or services.
(i) It is authorised by the government of the country.
(ii) Its demand and supply can be controlled by the Central Bank of the country.
(iii) In India, the law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India.No individual can legally refuse a payment made in rupees.
Q.4 State any three characteristics of money.
A. (i) Money has eliminated the problem of double coincidence of wants.
(ii) Money acts as a medium of exchange.
(iii) It is easily acceptable.
Q.5 Mention any three limitations of the barter system.C [CBSE 2008)D)]
A.(i) Two people with different types of needs and goods must be there to satisfy each other’s needs.
(ii) There are many products that cannot be divided.
(iii) Valuation of goods is very difficult.
(iv) Barter system is time consuming.
Q.6 Mention any four uses or advantages of money.
A. (i) Money is used as a medium of exchange.
(ii) Money offers economic freedom to the people.
(iii) Money is used for purchasing goods and services.
(iv) It is easy to store money.
Q.7 Distinguish between the modern and traditional forms of money.
|Modern Forms of Money||Traditional Forms of Money|
|(i)Modern forms of money include currency-paper notes and coins.
(ii) The modern currency is without any use of its own.
|(i)Traditional forms o money include gold, silver and copper.
(ii)The traditional forms of money had its own uses.
Q.8 What is included in the modern forms of money? Explain.
A.(i)Currency: Modern form of money include paper notes and coins held by the public.
(ii)Demand Deposits of Commercial Banks: Demand deposits are the deposits that can be encashed by issuing cheques at any time by the account holders. A demand deposit is treated as equal to currency held as it is readily accepted as a means of payment.
Q.9 “Credit may be useful or may put the creditor into a debt trap.”Explain.
“Credit is useful as well as harmful, it depends on the risk involved .”Support the statement with examples[CBSE 2012]
A.(i) Credit is a working capital which is required for production. The credit helps the farmers to meet the ongoing expenses of production. The credit helps the farmers to meet the ongoing expense of production, complete production on time, and thereby increase his earnings. Credit, therefore, plays a vital and positive role in this situation.
(ii)The failure of crops may push the borrower into a situation from which recovery is very painful. In many cases farmer need to sell part of the land to repay the loan.
(ii) Whether the credit would be useful or not depends on the risks in the situation and whether there is some support in case of loss.
Q.10 “The rupee is widely accepted as a medium of exchange.Explain.[CBSE 2008(D),2012,2013(D),2015(O)]
A.(i) It is authorized by the government of the country.
(ii) Its demand and supply can be controlled by the Central Bank of the country.
(iii) In India, the law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India.No individual can legally refuse a payment made in rupees.
(iv) In India, the value of each good or service is measured in the rupee.
Q.11 What are the advantages of depositing money in the banks? [CBSE 2010(F)]
How are deposits with the banks beneficial for individuals as well as for the nation? Explain with examples(CBSE 2015(D),2016(O)]
A.(i) It is a safer place to keep the money as compared to the house or a working place.
(ii) People can earn interest on the deposited money.
(iii)People can earn interest on the deposited money.
(iv)People can also make payments through cheques.
(v)Banks keep only a small proportion of their deposits with themselves and rest is extended as loan which is used for the overall development of the nation.
Q.12 What is a cheque? What are its advantages?
A. A cheque 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 made.
- It is the safest mode of transaction.
- It is easy to carry a cheque as compared to money.
Q.13 What are demand deposits? What are their advantages? [CBSE March 2012,2016(F) Comptt.]
A. The deposits in the bank accounts which can be withdrawn on demand are known as a demand deposit.
(i) People earn interest on the demand deposit.
(ii) The depositor can make the payment through a cheque.
Q.14 Why are demand deposits considered as money?[CBSE 2010(F)]
How do demand deposits facilitate transactions?[CBSE March 2012]
What are the demand deposits? List any two advantages of demand deposits.[CBSE 2014]
(i) Demand deposits are deposits that can be encashed by the account holder at any time.
(ii) They can be used as a medium of exchange.
(iii) The are easily acceptable.
(iv) They help in settling payments without the use of cash.
Q.15 What is collateral? Explain.[CBSE 2012(F)]
Why do lenders ask for collateral while lending? Give any three reasons [CBSE 2014(F)]
A. Collateral is an asset that the borrower owns (such as land building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or the collateral to obtain the payment. Property such as land titles, deposits with banks, livestock, etc. are some of the common examples of collateral used for borrowing.
Q.16 The ‘RBI plays a crucial role in controlling the formal sector loans’. Explain.
Who supervises the functioning of banks? In what ways is the supervision done ?[CBSE 2009(F),March 2011]
which government body supervises the functioning of formal sources of loans in India? Explain its functioning.[CBSE March 2012(O)]
A. (i) The formal resources work under the supervision of the Reserve Bank of India or the RBI. All the commercial banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance.
(ii) The RBI Monitors that the banks give loans not just to profit-making business and traders, but also to small cultivators, small –scale industries, to small borrowers, etc.
(iii) The rate of interest of the formal lenders is decided by the RBI. so normally, the interest rates are very low.
Q.17 How is money transferred from one blank account to another bank account? Explain with an example.[CBSE 2016(F)]
A. There are various ways to transfer money from one bank to another.
(i) Cheque: Money from one bank to another can be transferred through a cheque. A cheque is a paper which instructs the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued.
(ii) Net banking: These days money can also be transferred through net banking.
(iii) Demand Draft: Money can also be transferred through demand draft.
Long Answer Type Questions (4/5 Marks each)
Q.1 Explain the loan activities of banks.
What do the banks do with the deposits which they accept from the public? Explain [CBSE 2009(F)]
A.(i) Accepting deposits and lending money are the primary functions of a bank.
(ii) Banks keep only a small proportion of their deposits as cash with themselves. For example, banks in India these days hold about 15 percent of their deposits as cash. This is kept as a provision to pay the depositors who might come to withdraw money from the bank.
(iii) Banks use the major portion of the deposits to extend loans. Banks make use of the deposits to meet the loan requirements of the people.
(iv) In this way, banks mediate between those who have surplus funds (the depositors)and those who are in need of these funds (the borrowers).
(v) Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from the borrowers and what is paid to the depositors is their main source of income.
Q.2 What is credit? Why is there a need for credit in rural areas? [CBSE March 2011]
A.(i) Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
(ii) The main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment etc. There is a minimum stretch of three to four months between the time when the farmers buy these inputs, and when they sell the crop.
(iii) Farmers usually take crop loans at the beginning of the season, and repay the loan after harvest. Repayment of the loan is crucially dependent on the income from farming.
Q.3 Distinguish between formal and informal credit resources. [CBSE 2008 Compitt. (D),2016(F) Comptt.]
Explain any two features each of formal sector loans and informal sector loans.[CBSE March 2011,2016(D)]
What are the two categories of sources of credit? Mention four features of each[CBSE 2013(D)]
‘The credit activities of the informal sector should be discourages’. Suport the statement with arguments.[CBSE 2016(D)]
|(i)These resources work under the supervision of the Reserve Bank of India(RBI).
(ii)They charge a low rate of interest.
(iii)They follow rules and regulations formed by the government.
(iv)Commercial banks, cooperative societies, etc. are the main sources of formal credit.
|(i)These do not work under any government organization.
(ii)They charge a high rate of interest.
(iii)They do not follow any rules and regulations.
(iv)Relatives, money lenders and landlords are the main source of informal credit.
Q.4’Cheap and affordable credit is crucial for the country’s development ‘Explain[CBSE March 2011,2014(O),2018(O)]
Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain.[CBSE 2015(D)]
“Credit has its own unique role for development”.Justify the statement with arguments.
Describe the vital and positive role of credit with examples. [CBSE 2016(D)]
A. (I) If cheap credit is not provided to the farmers they will be forced to arrange the capital at high rate which will increase the cost of production. The high cost of production put the farmers into a debt trap.
(ii) Cheap and affordable credit is also must manufacturing sector to purchase raw manufacturing sector to purchase raw material and other inputs.
(iii) Cheap and affordable credit is required to decrease the dependency on informal sources of credit.
(iv) Most of the Indian farmers are very poor so they do not have any surplus savings.
(v) Cheap and affordable credit is also required for establishing new manufacturing units especially small scale units.
Q.5 ‘Most of the poor households are still dependent on informal sources of credit.Explain[CBSE 2008 (D)2016(F)]
Why do the rural borrowers depend on the informal sector of credit? [CBSE March 2011]
What are the two main reasons for credit not being available to the rural poor? [CBSE March 2011]
Why are informal sources of credit preferred in rural areas? Give five reasons[CBSE 2014]
A.(i) Banks are not present everywhere in rural India, whereas the informal sources are easily available in all the villages.
(ii) Getting a loan from a bank is much more difficult than taking a loan that require proper documents and collateral. Most of the poor people don’t posses anything to offer as collateral.
(iii) Moneylenders vendors provide loan only for a productive purpose, whereas the informal sources provide credit for productive and non-productive purpose.
(v) The methods of business of the formal sources are very complex, whereas the informal resources have a very simple way of business.
Q.6 Explain SHGs
What is the idea behind forming the self Help Groups or the SHGs?Explain the functioning of the self Help Groups or the SHGs.[CBSE 2008.2009(O)2015(D)2016(F)]
A. (i) A typical SHGs can have 15 to 20 members usually belonging to the same village.
(ii) The main motive of the SHGs is to pool the savings of the poor people.
(iii) Saving per member can vary from rupee 25 to rupee 100 or more depending on the ability of the people, and the strength of the group.
(iv) The SHGs provide loans to their members at a reasonable rate.
(v) After a year or two, if the group is regular in savings, it becomes eligible for bank loans.
(vi) Loan is sanctioned in the name of the group with the man motive to create self-employment opportunities for the members.
(vii)In the recent years, many commercial and cooperative banks have provided loans to these SHGs for releasing mortgaged land, for meeting working capital needs, for housing materials, for acquiring assets like sewing machines, handlooms, cattle, etc.
(viii)The most important feature of SHGs is that most of these groups are being organized by women. These are helping women to become financially, self-reliant. The regular meetings of the groups provide a platform to discuss and act on a variety of social issues such as health, dowry, domestic violence, child marriage, etc.
Q.7 Why should the banks and cooperative societies provide more loan facilities to the rural households in India? Give four reasons. [CBSE 2008(D), March 2012]
A.(i)Most of the farmers are very poor, they do not have any surplus money.
(ii)Moneylenders charge a very high rate of interest. This leads to increasing debt and debt trap.
(iii)Moneylenders use unfair means to get their money back.
(iv)Cheap and affordable credit is a must for rural development.
(v)Cheap credit helps in lowering the cost of production.
Q.8 Describe four major sources of credit for rural household in India[CBSE 2008 Comptt. (D)]
Describe the sources of formal and informal credit in india. [CBSE March 2011]
A.(Cooperatives and commercial banks: Though upto 1990’s informal lenders like money lenders, relatives and traders were the major sources of credit for the rural people, but with the introduction of commercial and rural banks this trend has changed, As per the latest trends cooperatives and commercial banks are the major sources for the rural households. More than 50% of the rural household credit is financed by cooperatives and commercial banks.
(ii) Professional and agriculture money lenders: Professional and agriculture money-lenders are still the major source for rural credit for the poor household are still dependent on them for their credit needs. Though they charge high rate of interest but as they provide loan without any collateral so people approach them for loan requirement.
(iii) Government and other formal sources: Union Government and state governments also provide credit to the farmers though various schemes (Kisan Credit Card)and banks like Regional and Rural Bank and National Bank for Rural and Agricultural Development.
(iv) Self Help Groups: It is another source of credit for rural household their share is very less but they raised the living standard.
(v) Relatives and Friends: Relatives and friends are another important source of credit for rural households.Approx.7% of the rural household depend upon relatives and friends for their credit needs.
Q.9 How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.[CBSE 2016(O)
A. (i) Formal sector loans include commercial banks, cooperatives etc.
(ii) Cheap and affordable loans should be provided to the poor farmers and the workers.
(iii) Poor farmers and workers may be exempted from any kind of collateral.
(iv) The government can encourage to form several types of cooperatives like weavers cooperatives, workers cooperatives etc.
(iv) Formal credit should be distributed more equally.
NCERT EXERCISE for Money and Credit Chapter 3 Class 10 Economics
Q.1 In situations with high risks, credit might create further problems for the borrower Analyse the statement.[CBSE 2010(F)]
A. There is no denying the fact that in situations with high risks, credit might create further problems for the borrower. For instance, a small farmer takes a loan from a moneylender to meet the expenses of cultivation, with the hope that his/her harvest would help to repay the loan. By chance, if the crops fail due to pests or lack of rain, then it would become quite impossible to pay back the loan along with the interest would grow into a large amount.
In the next year, even with a normal harvest he/she would not be in a position to repay all the loan, and consequently he/she would be forced to sell a part of the land to repay the loan. Thus in such cases the credit proves nothing less than a debt for the borrower, and creates further problems for him/her.
Q.2 How does money solve the problem of double coincidence of wants? Explain with an examples of your own.
A. Refer Q. No.1, Long Answer Type Questions.
Q.3 How do banks mediate between those who have surplus money, and those who need money?
A. Refer Q.No.1, Long Answer Type Questions.
Q.4 Look at a 10 rupee note. What is written on the top? Can you explain this statement?
A. RESERVE BANK OF INDIA
Guaranteed by the Central Government
1 promise to pay the bearer
The sum of ten Rupees
Governor of the Reserve Bank
Explanation of this Statement: It means that the Reserve Bank of India (RBI) has been authorized by the Central Government to issue 10 Rupee Notes and the Governor of this Bank promises to pay 10 rupees to the bearer of this notes without this authority given by the Central Government, the 10 rupee note is merely a piece of paper and nothing else.It si the authority of the Central Government which makes it a legal currency.
Q.5 Why do we need to expand the formal sources of credit in India? [CBSE March 2011]
“There is an urgent need to expand formal source of credit”. Analyze the statement.
A. (i) Supervision: The formal resources work, under the supervision of the Reserve Bank of India or the RBI. For instance, we have seen that the banks maintain a minimum cash balance, out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance, similarly, the RBI monitors that the banks give loans not just to profit-making business and traders, but also to small borrowers, etc. Periodically, banks have to sumbit information to the RBI on how much they are lending to whom, at what interest rate, etc.
On the other hand, there is no organization which supervises the credit activities of lenders in the informal sector. They can lend at any interest rate.
(ii) Lower rate of interest: The rate of interest of the formal lenders is decided by the RBI. So normally, the interest rates are very low. On the other hand, the informal lenders charge a much higher interest on loans.
Q.6 What is the basic idea behind the SHGs for the poor? Explain in your own words.
A. Refer Q.No.6 Long Answer Type Questions.
Q.7 What are the reasons why the banks might not be willing to lend to certain borrowers?
A.(i) Banks loans require proper documents and collaterals. Most of the poor people don’t posses anything which can be used as collateral.
(ii)The formal sources provide loan only for productive purposes, whereas the poor people may demand loan for non-productive purposes.
Q.8 In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
How does the Reserve Bank of India supervise the functioning of banks? Why is necessary? [CBSE March 2011,2012]
A. Refer Q.No.16 Short Answer Type Questions.
Q.9 Analyse the role of credit for development.
A.(i) Farmers can purchase modern inputs like fertilizers, seeds, pesticides, machines with credit.
Q.10 Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the money lender? Discuss.
A.(i) Rate of interest.
(ii) Amount required.
(iii) Procedure to obtain the loan.
(v)Terms and conditions of the loan.
Q.11 In India about 80 percent of farmers are small farmers who need credit for cultivation.
(a) Why might banks be unwilling to lend cultivation.
(b) From whom do these small farmers usually borrow?
(C) Explain with an example how the terms of credit can be unfavourable for the small farmers.
(d) Suggest some ways by which small farmers can get cheap credit.
A. (a) The banks are unwilling to lend to small farmers because of the following reasons:
(i) The small farmers cannot give any proof of their income.
(ii) They are not able to offer anything as guarantee to the bank against their loans.
(iii) Nobody comes forward to stand as surety for the small farmers.
(b) Such small farmers often borrow from a moneylender or a trader, who supplies him seed, and his other requirements.
(c)If the farmer borrows from either a moneylender or a local trader, he will always be a loss because he will have to pay a high rate of interest between 3 to 5% per month, which comes to a high rate of interest between 36% and 60% per annum.
(d)Small farmers can get cheap loan from their own cooperative which loans to its members at the cheap rates.
Q.12 Fill in the blanks:
(i) Majority of the credit needs of the ………………………….households are net from informal sources.
(ii)……………………..costs of borrowing increase the debt-burden.
(iii)………………………..issues currency notes on behalf of the Central Government.
(iv)Banks charge a higher interest rate on loans than what they offer on…………………………..
(v)…………………….is an asset that the borrower owns, and uses as a guarantee until the loan is repaid to the lender.
A. (i)Farming or agriculture
(iii)Reserve Bank of India
Q.13 Choose the correct answer:
(i) In a SHG, most of the decisions regarding savings and loan activities are taken by:
(a)Bank (b)Members (c)Non-Government organizations.
(ii)Formal sources of credit does not include:
Higher Order Thinking Skills (Hots) Questions
Q.1 Study the given pie chart carefully, and answer the following questions:[CBSE 2008]
(i)Which is the most important informal source of credit as per the given pie chart[CBSE 2008(D)
(ii)Which is the most important source of credit for rural households in India?
(iii)Why still a large number of people still depend upon informal sources of credit?
A. (i) Moneylenders
(ii) Cooperatives and commercial banks.
(iii) (a) Banks are not present everywhere.
(b) Getting a loan from the bank is difficult.
Q.2 Why are transaction made in money? Explain with suitable examples.
A.(i)Medium of exchange: Money is accepted as medium of exchange as it is authorized by the government of the country. For example, Indian currency is authorized by RBI.
(ii)Economic freedom: Money offers economic freedom to be consumers.
(iii) Solves the problem of double coincidence of wants: Under double coincidence of wants both seller and the buyer should be ready to exchange goods. For example, in case absence of money if a shoe manufacturing wants wheat he has to look for wheat growing farmer who wants to sell wheat growing farmer who wants to sell wheat but also wants to buy shoe in exchange.
(iv)Other facilities: Money also provide facility of cheque and demand deposits which makes transaction more easy and safe.
Q.3 “Income and employment will increase if the farmers are provided irrigation and marketing facilities.”Justify the statement.[CBSE 2010(F)]
A.(i)Irrigation is a basic input in agriculture. To provide irrigation government needs to dig canals or wells. This well provide more employment opportunities in rural areas.
(ii)Irrigation is a basic input in agriculture. To provide irrigation government needs to dig canals or wells. This will provide more employment opportunities in rural areas.
(iii) Farmers need market to sell the surplus production. Farmers can get higher rates of their crops in the market. This will increase their income.
(iv)To build the market government has to invest in roads or railways. This will increase employment opportunity.
Q.4 ‘Forms of currency have undergone several changes since early times”.Elucidate.[CBSE 2014,15]
A.(i) Before the introduction of coins a variety of objects was used as money.
(ii)In the way early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins such as gold, silver, copper coins. The was a phase that continued well into the last century.
(iii) Modern forms of money include currency-paper notes and coins. Unlike the things that were used as money earlier, modern currency is not made of precious metals. The modern curency is without any use of its own.
Q.5 Explain with examples the role of banks in the economic development of the country. [CBSE 2014]
A.(i)Bank mediate between those who have surplus money and those who need money.
(ii)Banks take deposits from those who have surplus money. They keep only a small proportion of deposits as cash with themselves and use the major portion of the deposit to extend loans.
(iii)Cheap and affordable credit is crucial in modern business. It helps to meet the working capital needs of production and in setting up new industries or trade in goods.
(iv)Banks account for 25% of rural credit in India. In this way, banks help in increasing economic activities of the borrowers.
(v)If credit is available to the poor people on reasonable terms and conditions, it can improve terms and conditions, It can improve their economic conditions which, in turn, will help them to have better standard of living.
Q.6 Mention any six items that can be kept as a collateral against loans.[CBSE 2014]
A. (i) Land titiles
(v)Deposits with banks
(vi) Share, debenture and L.I.C Policy.
Q.7 Explain the term ‘debt –trap’ Why is it more rampant in rural areas? Give two reasons.[CBSE 2011]
A. When the credit pushes the borrower into a situation from which the recovery is very painful, it is called debt-trap. For example, in the case of crop failure small or marginal farmers have to sell a portion of his/her land to repay loan.
(i)Farmers take loans for crop production, equipment, fertilisers, etc. It crop failure happens due to any reason, they become unable to pay back the loan.
(ii)There is usually absence of any kind of support to the farmers in case of crop failture. So they clearly much worse off than before.
Q.8 Study the given pie charts carefully, and prepare a report.
A. The given pie charts shows the importance of formal and informal sources of credit for people in urban areas. The people are divided into four types, from poor to rich, as shown in the pie charts. You can see that 85 per cent of the loans taken by poor households in the urban areas are from the informal sources. If you compare this with the urban households you can notice that only 10 per cent are from informal sources, while 90 per cent are the formal sources. While, A similar pattern is also found in rural areas. The rich households are availing cheap credit from formal lenders ,whereas the poor households have to pay a heavy price for borrowing.
Q.9 Why are credit arrangements not fair for all sections of society ? Give three reasons. Suggest two remedies for the problem.[CBSE 2014]
Why is the share of formal sector credit higher for the richer households compared to the poorer households ? Give any three reasons responsible for this.[CBSE 2014]
A. Undoubtedly credit arrangements are not very fair for all the richer households as compared to the poorer households.
(i)Poverty affects poor household’s capacity to borrow, Formal sector credit requires proper documents and collateral as security against loans. Collateral is an asset. So poor people lack in providing such things which affect their capacity to borrow.
(ii)The poor people do not repay loan on time because of the various day-to-day needs.
(iii)The people in villages may not have access to banks in their village. Also, they are hesitant and unsure about the functioning of the banks.
(i)More credit facilities should be made available in rural areas by opening more banks there.
(ii)The procedure of giving loans should be made easier and simpler.
Q.10 Self Help Groups enjoy a lot of freedom n their functioning.Explain.[CBSE 2014,2015]
A. (i) Inself Help Groups, there is no provision of certain number of members or certain amount to deposit. Members are free to their number and amount to deposit in the group.
(ii)Most of the important decisions regarding the savings and loan activities are taken by the group members.
(iii)The group decides as regards the loans to be granted-the purpose, amount, interest to be charged, repayment schedule, etc.
(iv)Also.it is the group which is responsible for the repayment of the loan. In any case of non-repayment of loan by anyone, the member is followed up seriously by other members in the group.
(v)The SHG’s help borrowers overcome the problem of lack of collateral and documentation requirement. Besides, the regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic, violence, etc.
Q.11 How do self Groups help the poor in rural areas? Explain.
Self help Groups can help in solving the problem of credit in rural areas. Explain.
How SHGs are the best source to help the poor people?[CBSE 2015]
A. (i) Absence of collateral is one of the major reasons which prevents the poor from getting bank loans, whereas, there is no need for collateral or difficult paper work to take loans from SHGs.
(ii) SHGs have lower interest rate than that of moneylenders or traders. They can get timely loans for a variety of purposes.
(iii) It creates employment opportunities for the member who are rural poor, particularly women.
(iv)It encourages regular savings of the rural poor.
(v)SHGs help rural women not only to become financially self-reliant but also, the regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc.