CHAPTER 3 MONEY AND CREDIT
1. What is double coincidence of wants? How does money solve
double coincidence of wants?
i. Double coincidence of wants :It was a situation that existed in the
barter system of exchange, before the introduction of money. What a
person desires to sell and buy is exactly what the other wishes to buy
and sell. In this situation, it is
difficult to find a person who is willing to exchange two commodities
each other.
ii. Money solves the problem:
Where money is in use goods can be bought and sold to different persons
Anyone can sell or buy any product to anyone who wants it and get
money.
Money can be used to buy something from a different person.
2.. Why do we need to expand formal sources of credit in India?
1. The moneylenders or the agricultural traders charge a much higher
interest on loans.
2. The farmers who take loans from a trader are forced to sell their crops
to him at a low price. So farmers suffer and the traders make a profit
3. Higher interest means the borrower has to pay a major portion of his
earnings to repay loan. This leads to debt trap.
4. It is necessary that everyone receives these loans .
5. This would also lead to higher incomes and many people could then
borrow cheaply for a variety of needs.
6. It may be added that cheap and affordable credit is crucial for the
development of the country.
[Link] is the basic idea behind the SHGs for the poor? Explain in
your own words.
The basic 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.
The main objectives of the SHGs are:
1. To organize rural poor especially women into small Self Help Groups.
2. To collect savings of 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
as education, health, nutrition, domestic violence, etc.
[Link] what ways does the Reserve Bank of India supervise the
functioning of banks? Why is this necessary?
*The Reserve Bank of India monitors the amount of money that banks loan
out, and also the amount of cash balance maintained by them.
It also ensures that banks give out loans not just to profiteering businesses
but also to small cultivators, small scale industries, and small borrowers.
Periodically, banks are supposed to submit information to the RBI on the
amounts lent, to whom, and at what rates of interest.
*This monitoring is necessary:
To ensure that equality is preserved in the financial sector, and that small
industry are also given an outlet to grow.
To make sure that banks do not loan out more money than they are
supposed to, as this can lead to situations like the Great Depression
[Link] the differences between formal and informal sources of
credit.
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