A abampere (aA) The unit of electric current in the CGSeniu system, defined as that current that, if flowing through two parallel conductors of negligible cross section and infinite length, placed 1 cm apart in vacuo, would produce on each conductor a force of 1 dyne per centimeter of length. 1 abampere = 1 abcoulomb/s = r statampere (where c = speed of light in cm/s) = 10 ampere. aberration Imperfect image formation due to geometric imperfections in the optical elements of a system ablation 1 . The wasting of glacier ice by any process (calving, melting, evaporation, etc.). 2. The shedding of molten material from the outer sur- face of a meteorite or tektite during its flight through the atmosphere. absolute age The age of a natural substance, of a fossil or living organism, or of an artifact, obtained by means of an absolute dating method. See absolute dating method. absolute density Density in kg/m' or, more commonly, in g/cm\ both at STP. Cf. density, relative density abso
Money and Credit class 10 NCERT ECONOMICS MCQ & SAQ
Money and Credit class 10 NCERT ECONOMICS NCERT SOLUTION
Q.1: In situations with high risks, credit might create further problems for the borrower. Explain.
Ans: Whether a credit would be useful or not, will depend on a number of factors like - risks involved, whether there is some support against a loss, terms of credit etc. It is a fact that in situations with high risks, credit might create further problems for the borrower. For example, credit taken by farmers for cultivation might create problems for the farmer at some times. Crop production involves high costs on inputs such as HYV seeds, fertilizers, pesticides, irrigation etc. Farmers generally take loans at the beginning of the season and repay the loan after harvest. But the failure of the crop makes loan repayment impossible. Then in order to repay the loan sometimes, they become bound to sell part of their land. So, their situations become worse than before. The incidences of farmers’ suicides especially in Maharashtra are the burning examples of this situation.
Thus, whether a credit would be useful or not, depends on the various risks involved in the situation.
Q.2: How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Ans: In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look for a book publisher who will buy his cereals at the same time sell him books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service which he needs. This is because money acts as a medium of exchange.
Q.3: How do banks mediate between those who have surplus money and those who need money?
Ans: We know that banks accept the deposits from the people who have surplus money and also pay an interest on the deposits.
But banks keep only a small portion (15 per cent in India) of their deposits as cash with themselves. This is kept as a provision to pay the depositors who might come to withdraw money from their accounts in the bank on any day. They use the major portion of the deposits to extend loans to those who need money. In this way banks mediate between those who have surplus money and those who need money.
Q.4: Look at a 10 rupee note. What is written on top? Can you explain this statement?
Ans: “Reserve Bank of India” and “Guaranteed by the Government” are written on top.
In India, the Reserve Bank of India issues currency notes on behalf of the central government. The statement means that the currency is authorized or guaranteed by the Central Government. That is, Indian law legalizes the use of rupee as a medium of payment that can not be refused in setting transactions in India.
Q.5: Why do we need to expand formal sources of credit in India?
Ans: We need to expand formal sources of credit in India for many reasons:
1. Compared to formal lenders, most of the informal lenders charge much higher interest rates on loans like 3% to 5% per month i.e. 36% a year.
2. Besides the high interest rate, informal lenders impose various other tough conditions. For example, they make the farmers promise to sell the crop to him at a low price. There is no such condition in the formal sector.
3. Informal lenders do not treat the borrowers well. On the other hand, there is no such situation no such situation in the formal sector.
4. The Reserve Bank of India supervises the functioning of formal sources of loans. In contrast, there is no organization which supervises the credit activities of lenders in the informal sector.
5. Loans taken by poor people from informal lenders sometimes lead them to debt-trap because of high interest rates.
6. The formal sources of credit in India still meet only about half of the total credit needs of the rural people.
So, it is necessary that the formal sources of credit expand their lending especially in rural areas, so that the dependence on informal sources of credit reduces as this will also help in the development of the country.
Q.6: What is the basic idea behind the SHGs for the poor? Explain in your own words.
Ans: The basis behind the SHGs is to provide a financial resource for the poor through organizing the rural poor, especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral.
Thus, the main objectives of the SHGs are:
1. To organize rural poor, especially women, into small Self Help Groups.
2. To collect savings from their members.
3. To provide loans without collateral.
4. To provide timely loans for a variety of purposes.
5. To provide loans at a responsible rate of interest and easy terms.
6. Provide a platform to discuss and act on a variety of social issues such education, health, nutrition, domestic violence etc.
Q.7: What are the reasons why the banks might not be willing to lend to certain borrowers?
Ans: The banks might not be willing to lend certain borrowers due to the following reasons:
(a) Banks require proper documents and collateral as security against loans. Some people fail to meet these requirements.
(b) The borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
(c) The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks.
(d) One of the principle objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose it has to adopt judicious loan and investment policies which ensure fair and stable return on the funds.
Q.8: In what ways does the Reserve Bank of India supervise the functions of Banks? Why is this necessary?
Ans: The Reserve Bank of India supervises the functions of banks in a number of ways:
1. The commercial banks are required to hold part of their cash reserves with their RBI. RBI ensures that the banks maintain a minimum cash balance out of the deposits they receive.
2. RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc.
3. The commercial banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate etc.
This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. In this process, RBI also acts as the lender of the last resort to the banks.
Q.9: Analyze the role of credit for development.
Ans: Cheap and affordable credit plays a crucial role for the country’s development.
There is a huge demand for loans for various economic activities. The credit helps people to meet the ongoing expenses of production and thereby develop their business. Many people could then borrow for a variety of different needs. They could grow crops, do business, set up industries etc. In this way credit plays a vital role in the development of a country.
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 moneylender? Discuss.
Ans: Manav will decide whether to borrow from the bank or the money lender on the basis of the following terms of credit:
(a) rate of interest
(b) requirements for the availability of collateral and documentation required by the banker.
(c) mode of repayment.
Depending on these factors and of course, easier terms of repayment, Manav has to decide whether he has to borrow from the bank or the moneylender.
Q.11: In India about 80 per cent of farmers are small farmers, who need cultivation.
(a) Why might banks be unwilling to lend to small farmers?
(b) What are the other sources from which the small farmers can borrow?
(c) Explain with an example how the terms of credit can be unfavorable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
Ans:
(a) Bank loans require proper documents and collateral as security against loans. But most of the time the small farmers lack in providing such documents and collateral. Besides, at times they even fail to repay the loan in time because of the uncertainty of the crop. So, banks might be unwilling to lend to small farmers.
(b) Apart from banks, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs etc.
(c) The terms of credit can be unfavorable for the small farmer which can be explained by the following -
Ramu, a small farmer, borrows from a local moneylender at a high rate of interest i.e. 3 per cent to grow rice. But the crop is hit by drought and it fails. As a result Ramu has to sell a part of the land to repay the loan. Now his condition has become worse than before.
(d) The small farmers can get cheap credit from different sources like – Banks, Agricultural Cooperatives, and SHGs.
Q.12: Fill in the blanks:
(i) Majority of the credit needs of the ________________ _ households are met from informal sources.
(ii) __________ costs of borrowing increase the debt burden.
(iii) __________ issues currency notes on behalf of the Central Government.
(iv) __________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Ans: (i) poor (ii) high (iii) RBI (iv) deposits (v) collateral
Money and Credit class 10 NCERT ECONOMICS MCQ
Question : The exchange of goods for goods is:
a) banker of option b) bills of exchange c) barter d) currency
Answer : C
Question : Currency is issued by:
a) RBI on behalf of the central government b) By the president of India.
c) By finance minister d) None of them
Answer : A
Question : National Sample Survey Organization is a :
a) Commercial bank organization b) An organization of World Bank
c) An organization associated with the Indian Standard. Institute
d) An institution responsible to collect data on formal sector credit.
Answer : C
Question : Gold mohar, a coin so named, was brought into circulation by:
a) Akbar b) Sher Shah Suri c) Ashok d) Shivaji
Answer : A
Question : Which agency is not included in the informal loan sector or agency:
a) Bank b) Village money lender c) Trader d) Relative of borrower
Answer : D
Question : In SHG most of the decisions regarding savings and loan activities are taken by:
a) Bank b) Members c) Non-government organizations d) LIC
Answer : A
Question : Formal sources of credit does not include:
a) Banks b) Co-operatives c) Employers d) LIC
Answer : A
Question : Security (pledge, mortgage) against loan:
a) Collateral b) Token Coins c) Promissory Note d) Currency
Answer : B
Question : A bill of exchange promising payment to a certain sum written there in:
a) Promissory note
b) Currency
c) Collateral
d) Bank rate
Answer : Promissory note
Question : The founder of Grameen bank of Bangladesh is:
a) Mohammad Yunus
b) Amartya Sen
c) Mohammad Salim
d) None of the options
Answer : Mohammad Yunus
Question : Security (pledge, mortgage) against loan:
a) Collateral
b) Token Coins
c) Promissory Note
d) Currency
Answer : Collateral
Question : Formal sources of credit do not include:
a) Employers
b) Co-operatives
c) Banks
d) LIC
Answer : Employers
Question : In SHG most of the decisions regarding savings and loan activities are taken by:
a) Members
b) Bank
c) Non-government organizations
d) LIC
Answer : Members
Question : Which agency is not included in the informal loan sector or agency:
a) Bank
b) Village money lender
c) Trader
d) Relative of borrower
Answer : Bank
Question : Gold mohar, a coin so named, was brought into circulation by:
a) Akbar
b) Sher Shah Suri
c) Ashok
d) Shivaji
Answer : Akbar
Question : National Sample Survey Organization is a:
a) An institution responsible to collect data on formal sector credit.
b) Commercial bank organization
c) An organization of World Bank
d) An organization associated with Indian Standard Institute
Answer : An institution responsible to collect data on formal sector credit.
Question : Currency is issued by:
a) RBI on behalf of central government
b) By the president of India.
c) By finance minister
d) None of the options
Answer : RBI on behalf of central government
Question : The exchange of goods for goods is:
a) barter
b) banker of option
c) bills of exchange
d) currency
Answer : barter
1. Credit or loan refers to an agreement between:
(a) lender and borrower
(b) consumer and producer
(c) government and taxpayer
(d) all the above
► (a) lender and borrower
2. Money
(a) eliminates double-coincidence of wants
(b) acts as a common measure of value
(c) acts as a standard of deferred payments
(d) all the above
► (d) all the above
3. Terms of credit are with respect to:
(a) interest rate
(b) collateral
(c) documentation
(d) all the above
► (d) all the above
4. System of exchanging goods for goods is called:
(a) monetary system
(b) credit system
(c) barter system
(d) exchange system
► (c) barter system
5. At present which form of money is increasingly used apart from paper money?
(a) Commodity money
(b) Metallic money
(c) Plastic money
(d) All the above
► (c) Plastic money
6. The part of the total deposits which a bank keeps with itself in cash is
(a) zero
(b) a small proportion
(c) a big proportion
(d) 100 percent
► (b) a small proportion
7. What are the modern forms of money?
(a) Currency
(b) Plastic money
(c) Demand deposits
(d) All the above
► (d) All the above
8. Currency is issued in India by :
(a) commercial banks
(b) regional rural banks
(c) nationalized banks
(d) Reserve Bank of India
► (d) Reserve Bank of India
9. Terms of credit are with respect to :
(a) interest rate
(b) collateral
(c) documentation
(d) all the above
► (d) all the above
10. At present which form of money is increasingly used apart from paper money?
(a) Commodity money
(b) Metallic money
(c) Plastic money
(d) All the above
► (c) Plastic money
11. Which state accounts for the maximum percentage of SHGs (self-help groups) in bank credit?
(a) Andhra Pradesh
(b) Tamil Nadu
(c) Kerala
(d) Karnataka
► (a) Andhra Pradesh
12. Who supervises the credit activities of lenders in the informal sector?
(a) Central Bank of India
(b) Commercial banks
(c) Moneylenders
(d) None
► (d) None
13. Which of the following is not a source of rural credit?
(a) Regional rural banks
(b) Moneylenders
(c) Traders
(d) Government
► (d) Government
14. Which state accounts for the maximum percentage of SHGs (self-help groups) in bank credit?
(a) Andhra Pradesh
(b) Tamil Nadu
(c) Kerala
(d) Karnataka
► (a) Andhra Pradesh
15. Regional Rural Banks were set up in ________.
(a) 1969
(b) 1979
(c) 1989
(d) 1999
► (a) 1969
16. Rate of interest charged by moneylenders as compared to that charged by banks is:
(a) lower
(b) same
(c) slightly higher
(d) much higher
► (d) much higher
17. Who supervises the functioning of formal sources of loans?
(a) Reserve Bank of India
(b) Central government
(c) State government
(d) None
► (a) Reserve Bank of India
18. Formal sources of credit include
(a) banks
(b) moneylenders
(c) employers
(d) all the above
► (a) banks
19. Which of the following is a major reason which prevents the poor from getting bank loans?
(a) Absence of collateral (security)
(b) Non-repayment of loans
(c) Higher interest rates
(d) Documentation
► (a) Absence of collateral (security)
20. Which of the following is not a modern form of money?
(a) Paper notes
(b) Demand deposits
(c) Silver coins
(d) None of the above
► (c) Silver coins
21. Which one of the following authorizes money as a medium of exchange?
(a) Reserve Bank of India
(b) Self Help Groups
(c) The Central Government
(d) The President of India.
► (a) Reserve Bank of India
22. Who helps the borrowers to overcome the problem of lack of collateral?
(a) Self-help group (SHG)
(b) State government
(c) Employers
(d) Moneylenders
► (a) Self-help group (SHG)
23. Which of the following is not an advantage of a self-help group?
(a) Grant of timely loans
(b) Reasonable interests
(c) A platform to discuss various issues
(d) Does not help women to become self-reliant.
► (d) Does not help women to become self-reliant.
24. Identify the formal source of credit:
(a) Cooperative societies
(b) Moneylenders
(c) Traders
(d) Landlords
► (a) Cooperative societies
25. Which of the following is not true regarding the inconvenience of Barter Exchange?
(a) Lack of double coincidence of want
(b) Absence of divisibility
(c) Difficulty in storing wealth
(d) Availability of money as a medium of exchange.
► (d) Availability of money as a medium of exchange.
26. Which one of the following is not a modern form of money?
(a) Demand Deposits
(b) Paper currency
(c) Coins
(d) Precious metals
► (d) Precious metals
27. Formal Sources of credit include:
(a) money lenders
(b) co-operatives
(c) Employers
(d) Finance companies
► (b) co-operatives
28. Which one of the following is NOT an informal sector loan for poor rural households in India?
(a) Commercial Banks
(b) Moneylenders
(c) Traders
(d) Landlords
► (a) Commercial Banks
29. In a SHG most of the decisions regarding loan activities are taken by
(a) Banks
(b) Member
(c) Non-government organizations
(d) Cooperatives
► (b) Member
30. Formal Sources of credit include :
(a) money lenders
(b) co-operatives
(c) Employers
(d) Finance companies
► (b) co-operatives
31. Banks do not give loans:
(a) to small farmers
(b) to marginal farmers
(c) to industries
(d) without proper collateral and documents
► (d) without proper collateral and documents
32. Which one of the following agencies issues currency notes on behalf of the government of India?
(a) Ministry of Finance
(b) Reserve Bank of India
(c) State Bank of India
(d) World Bank
► (c) State Bank of India
33. Which one of the following is a major reason that prevents the poor from getting loans from the banks?
(a) Lack of capital
(b) Not affordable due to high rate of interest
(c) Absence of collateral security
(d) Absence of mediators
► (c) Absence of collateral security
34. Which one of the following is not a formal source of credit?
(a) Commercial Banks
(b) State Bank of India
(c) Employers
(d) Co-operatives
► (c) Employers
35. Which one of the following is the most important characteristic of the modern form of currency?
(a) It is made from precious metal
(b) It is made from things of everyday use
(c) It is authorized by the commercial banks
(d) It is authorized by the Government of the country
► (d) It is authorized by the Government of the country
36. Which one of the following is the main source of credit for the rich households?
(a) Informal
(b) Formal
(c) Both formal and informal
(d) Neither Formal nor informal
► (b) Formal
37. Which is not the main source of credit from the following for rural households in India?
(a) Traders
(b) Relatives and friends
(c) Commercial Banks
(d) Moneylanders
► (a) Traders
38. Which among these is an essential feature of the barter system?
(a) Money can easily exchange any commodity
(b) It is based on double coincidence of wants
(c) It is generally accepted as a medium of exchange of goods with money
(d) It acts as a measure and store of value
► (b) It is based on double coincidence of wants
39. Which one of the following is not included in the terms of credit?
(a) Rate of Interest
(b) Mode of payment
(c) Rate of saving
(d) Collateral
► (c) Rate of saving
40. Which households take more loans from the formal sector?
(a) Poor households and rich households.
(b) Well off households and households with few assets.
(c) Poor households and well off households
(d) Well off households and rich households.
► (d) Well off households and rich households.
41. When both parties agree to sell and buy each other's commodities it is known as:
(a) measure of value
(b) double coincidence of wants
(c) store of value
(d) credit
► (b) double coincidence of wants
42. What portion of deposits are kept by the banks for their day-to -day transactions?
(a) 10%
(b) 15%
(c) 20%
(d) 25%
► (b) 15%
43. Banks use the major portion of the deposit to:
(a) Keep reserve so that people may withdraw
(b) Meet their routine expenses
(c) Extend loans
(d) Meet renovation of the bank
► (c) Extend loans
44. Which is not the main source of credit from the following for rural households in India?
(a) Traders
(b) Relatives and friends
(c) Commercial Banks
(d) Moneylanders
► (a) Traders
Money and Credit class 10 NCERT ECONOMICS SAQ
Q1: Define money?
Answer: It is defined as a medium of exchange.
Q2: What does money serve?
Answer: Money serves as :
a. a unit of accounting
b. a store of value or purchasing power
c. a standard of deferred payment
Q3: What is Double Coincidence of Wants?
Answer: It refers to a situation wherein what a person wishes to sell is exactly the same as that the other person wishes to buy.
Q4: In which situation Double Coincidence of Wants is the most suitable?
Answer: In barter system.
Q5: What was the form of money in the Ancient Period?
Answer: Grain and cattle (Barter System)
Q6: What was the form of money in the Medieval Period?
Answer: Metallic coins of gold, silver, copper
Q7: What is the modern form of money?
Answer: Modern forms of money include currency - paper notes and coins.
Q8: What is the value of paper currency?
Answer: Paper currency has value because it has got the sanction of the government.
Q9: Name the organization in India which is authorized to issue currency notes on behalf of GOI?
Answer: Reserve Bank Of India (RBI)
Q10: Justify money as the most liquid asset?
Answer: Money is the most liquid asset because it can easily be acquired or disposed of without high transaction costs. People can easily convert money to other asset forms.
Q11: Why are bank deposits called demand deposits?
Answer: Because the deposited money can be withdrawn from banks as and when required on demand.
Q12: How do banks facilitate transfers of money?
Answer: Through cheques, demand drafts, credit/debit cards, ATMs and internet banking.
Q13: What is a cheque?
Answer: A cheque is a document issued by an account holder to the bank, instructing the bank to pay a specific amount from the issuer’s account to the person in whose name the cheque has been issued.
Q14: What percentage of cash is reserved by banks for day to day withdrawals. Who set the guidelines for this cash reserve?
Answer: Around 15%. Guidelines set by RBI.
Q15: What is the main source of income of banks?
Answer: The interest provided by banks to depositors is less than the interest charged by banks from borrowers on loans. This difference is the main source of income of banks.
Q16: Define Debt Trap?
Answer: It is a situation in which a person is caught in the vicious cycle of debts. He/she takes loans for meeting his/her requirements and on being unable to pay back the loan, takes a fresh loan to repay the old loan. This leaves him/her indebted all through his/her life.
Q17: Define terms of credit.
Answer: The terms of credit include rate of interest, collateral and mode of repayment. The terms of credit varies from one loan agreement to another and also on the nature of the lender and the borrower.
Q18: What is collateral?
Answer: Collateral is an asset owned by the borrower like land, building, vehicle, livestock etc. It is kept with the bank as a guarantee against a loan until the loan is repaid. In case of failure in repaying the loan, the bank has the rights to sell/auction the collateral to recover the loan amount.
Q19: What are the formal sources of credit?
Answer: Banks and cooperative societies.
Q20: What are the informal sources of credit?
Answer: Money lenders, friends and relatives, merchants and landlords.
Q21: How does Self Help Group mitigate the risk of debt trap?
Answer: Self Help Group pools the savings of its members, who in general are poor people. Time to time money from the pool is given to its members as loans at a cheap rate of interest. It helps borrowers overcome the problem of lack of collateral and avoids taking loans from private lenders at high rate. Thus the dependence on informal sources of credit reduces.
Money and Credit class 10 NCERT ECONOMICS long question
Q.1. Explain any two features of formal sector loans and informal sector loans. [2011 (T-2)]
Ans.
Formal Sector Loans:
Formal sector loans include loans from banks and cooperatives. Features of formal sector loans are:
(i) Formal sectors provide cheap and affordable loans and their rate of interest is monitored by RBI.
(ii) Formal sector strictly follows the terms of credit which include interest rate, collateral, documentation, and the mode of repayment.
Informal Sector Loans:
Informal sector loans include loans from moneylenders, traders, employers, relatives, friends, etc. Features for informal sector loans are:
(i) Their credit activities are not governed by any organization, therefore they charge a higher rate of interest.
(ii) Informal sector loan providers know the borrowers personally, and hence they provide loans on easy terms without collateral and documentation.
Q.2. What are the two main reasons for formal credit not being available to the rural poor? Why is there a need to expand rural credit? [2011 (T-2)]
Ans. The two main reasons for formal credit not being available to the rural poor are :
(i) Absence of collateral and documentation is the main reason which prevents rural poor from getting bank loans.
(ii) The arrangements of informal sector loans are flexible in terms of timelines, procedural requirements, interest rates, etc. They are adjustable according to the needs and convenience of the borrower.
There is a need to expand rural credit from the side of the formal sector because :
(i) Informal sectors exploit rural poor by putting them in debt traps.
(ii) Cheap and affordable credit for rural poor is important for the country’s overall development.
Q.3. Why do rural borrowers depend on the informal sector for credit? What steps can be taken to encourage them to take loans from formal sources? Explain any two. [2011 (T-2)]
Ans. The rural borrowers depend on the informal sector for credit because :
(i) Absence of collateral and documentation with rural borrowers.
(ii) Flexible loans in terms of timelines, interest rates, procedural requirements, etc. are provided to rural borrowers by informal sectors.
Steps that can be adopted to encourage them to take loans from formal sources are :
(i) Awareness among rural borrowers against the exploitation of informal sectors. Need to be aware of the high rate of interest and debt traps made by such moneylenders.
(ii) Promotion of self-help groups. These groups collect their savings as per their own ability to save. Members can take small loans from the groups to meet their requirements. If the group is regular in savings for a year or two, it can avail loan from the bank.
Q.4. ‘Cheap and affordable credit is crucial for the country’s development’. Explain the statement with four points.
OR
Why do we need to expand the formal sources of credit in India? Explain any four reasons. [2011 (T-2)]
Ans. If the loans are cheap and affordable, this can lead to countries' development in the following ways :
(i) Cheap loans result in higher incomes and higher profits which can help in the expansion of business.
(ii) More and more people can benefit from the loans in their businesses.
(iii) This can help in making more and more agricultural activities, small-scale industries, etc. Credit can be distributed more equally which helps in benefiting the poor by the help of cheaper loans.
Q.5. Answers the following questions :
(a) Why are banks unwilling to lend loans to small farmers?
(b) Besides banks, what are the other sources of credit from which the small farmers can borrow.
(c) Explain how terms of credit can be unfavorable for small farmers.
(d) From where can small farmers get cheap loans?
Ans.
(a) Banks provide loans after collateral and documentation securities, which generally the small farmers failed to comply with. Therefore, banks are unwilling to lend loans to small farmers.
(b) There are several informal sources of credit like landlords, moneylenders, traders, relatives, and friends, etc.
(c) Terms of informal credit can put the small farmers into debt traps. Higher rates of interest and unfavorable conditions exploit farmers by the situation of multiple loans.
(d) Farmers can get cheap and safe loans from formal credit providers i.e., banks and cooperative societies.
Q.6. Which are the two major sources of formal sector credit in India? Why do we need to expand formal sources of credit? [2011 (T-2)]
Ans. The two major sources of formal sector credit in India are — commercial banks and cooperative societies.
We need to expand formal sources of credit due to the following reasons :
(a) Informal sources of credit exploit the poor resulting in putting them into debt-traps.
(b) Formal sources of credit are cheaper and thus they help in the country’s development.
Q.7. What is meant by the term of credit? What does it include? [2011 (T-2)]
Ans. Terms of credit are the requirements that need to be satisfied for any credit arrangements. It includes the interest rate, collateral, documentation, and mode of repayment. However, the terms of credit vary depending upon the nature of the lender, borrower, and loan.
Q.8. How does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? [2011 (T-2)]
Ans. Reserve Bank of India (RBI) supervised the banks in the following ways :
(i) It monitors the balance kept by banks for day-to-day transactions.
(ii) It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers.
(iii) Periodically banks have to give details about lending, borrowers, and interest rate to the RBI. It is necessary for securing public welfare. It avoids the bank running the business with a profit motive only. It also keeps a check on the interest rate of credit facilities provided by the bank. RBI makes sure that the loans from the banks are affordable and cheap.
Q.9. Describe four features of the Self-Help Group (SHG). [2011 (T-2)]
Ans. The features of Self-Help Group (SHG) are :
(i) People form their personal groups for the purpose of savings and also lend money among themselves.
(ii) Rate of interest is lower than informal service providers.
(iii) They can also avail loans from banks if their savings are regular.
(iv) Decisions regarding the savings and loan activities are taken by group members.
Q.11. What is a double coincidence of want? How has money solved this problem? [2011 (T-2)]
Ans. Things exchanged for other things without the use of money are known as a barter system. The barter system laid the foundation of trade but trade was limited to the bounds of a village or town. Hence, in a barter system when both the parties agree to sell and buy each other's commodities, it is known as a double coincidence of wants. Whatever commodity a person desires to sell is exactly what commodity the other wishes to buy. Without double coincidence of wants, exchange of goods is not possible. Therefore, it is an essential feature. Money eliminates the need for a double coincidence of wants. One can easily exchange their goods in exchange for money and later on pay money for the desired commodities. Money acts as an intermediate in the process of exchange, it is called a medium of exchange.
Q.12. How do banks mediate between those who have surplus money and those who need money? [2011 (T-2)]
Ans. People keep their surplus money in banks for safety and interest which is provided by banks to them. Banks again keep only a small proportion of their cash with themselves. These days banks keep only 15% of the total deposits with them. The rest of the money banks keep extending loans. Banks charge interest on loans which is higher than the interest on deposits. This surplus interest becomes the source of income for the banks. The 15% of cash deposits which banks keep with themselves help to carry on with day-to-day transactions. Like every day, depositors come to withdraw some of their cash.
Q.13. Differentiate between formal and informal sources of credit. [2011 (T-2)]
Ans.
Q.14. Mention four characteristics of each of the formal and informal sources of credit in India. [2011 (T-2)]
Ans. Features of formal sources of credit are :
(a) Formal sources of credit are provided by banks and cooperative societies to the borrowers.
(b) Reserve Bank of India (RBI) governs the functioning of the formal sources of credit. RBI periodically checks the interest rate and other details of these sources.
(c) They follow proper terms of credit which include collateral, documentation, rate of interest, and mode of repayment.
(d) They provide cheap and affordable credits with common terms of credit for all.
Features of informal sources of credit are :
(a) Informal sources of credit are moneylenders, traders, employers, relatives, friends, etc.
(b) There is no government or private organization that manages or checks the credit activities performed by informal sources.
(c) Their terms of credit are flexible for the personal benefit of the lenders and the condition of borrowers.
(d) They generally charge higher rates of interest and exploit the borrowers for their own benefits.
Q.15. Study the table given below and answer the questions that follow : [2011 (T-2)]
PEOPLE DEPENDING ON FORMAL SECTOR CREDIT IN URBAN AREAS
(i) Poor household's share of formal credit in the urban areas is low as compared to that of rich households. Why is it so?
(ii) Mention two difficulties faced by poor households in taking loans from a formal sector.
Ans.
(i) Poor households share of formal credit in urban areas is low as compared to that of rich households due to the following reasons :
(a) Poor generally lack collateral guarantees and do not have a proper mode of repayment.
(b) Informal sources of credit are generally flexible in timings, rate of interest, repayment schedule, etc.
Therefore, it is easier for the poor to approach moneylenders as they know them personally.
(ii)
(a) Poor are not able to satisfy general terms of credit, mostly collateral guarantees.
(b) Informal moneylenders know the poor borrowers personally and therefore are flexible in terms of the repayment schedule, amount and interest, etc.
Q.16. What are the modern forms of money currency in India? Why is it accepted as a medium of exchange? How is it executed? [2008]
Ans. Modern forms of money include currency (paper notes) and coins. It is accepted as a medium of exchange because the currency is authorized by the government of India. No individual in India can legally refuse a payment made in rupee. Any person holding money can easily exchange it with any commodity or service that he desires. It acts as an intermediate in the exchange process of different countries.
Q.17. Why are transactions made in money? Explain with suitable examples. [2009]
Ans. Money is accepted as a medium of exchange because the currency is authorized by the government of India. In money transactions, money can be paid for any goods or services one desires. For example: the producer of shoes may want wheat in exchange for his shoes. But he may find it difficult to find a person who is also willing to exchange his wheat for shoes. So simultaneous fulfillment of mutual wants is the first and foremost condition to buy and sell the commodity. In money transactions, one can buy a commodity whenever one wants it. One does not have to wait for another person to agree to an exchange of goods.
Q.18. Study the diagram given below and answer the questions that follow : [2008]
(a) Which are the two major sources of credit for rural households in India?
(b) Which one of them is the most dominant source of credit for rural households?
(c) What is the most dominant source of credit? Give two reasons.
Ans.
(a) Moneylenders and cooperative societies.
(b) Moneylenders
(c) (i) Moneylenders do not ask for collateral.
(ii) Complicated paperwork or documentation is not involved.
Q.19. What are the various sources of credit in rural areas? Which one of them is the most convenient source of credit? Why is it most convenient? Give two reasons. [Delhi 2008]
Ans. Various sources of credit in rural areas are :
(i) Agricultural traders,
(ii) Moneylenders,
(iii) Commercial banks,
(iv) Cooperative societies and
(v) Relatives and friends.
The most convenient source of credit is a moneylender. It is most convenient because of the following two reasons :
(i) There is no need for a documentation process while taking loans from informal sources (moneylenders).
(ii) No collateral is required. Collateral is an asset that the borrower owns (such as land, building, livestock, etc.) and uses this as a guarantee to the lender until the loan is repaid.
Q.20. Differentiate between Reserve Bank of India RBI and Commercial Bank.
Ans.
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