Class 10th
Chapter 3
Money and Credit
1. In situations with high risks, credit might create further problems for the borrower. Explain.
Ans-
Credit helps the people to increase their earnings but in some situation with high risk, credit
pushes the people into debt trap. In such situations these people are compelled to sell their asset
such as land house, etc. In the situation of debt-trap, it is very difficult for the borrower to
recover from that debt. So, instead of improving earnings credit may create problems for the
borrowers.
2. How does money solve the problem of double coincidence of wants? Explain with an
example of your own.
Ans-
Double coincidence of wants implies that goods in possession of two different individual must be
useful and needed by each other. But it is very rare occurrence because it is very difficult to find
such a person who is agree to exchange goods with you that you need at that time. For example
Ram Singh has horse but he want to buy a cow and sell horse. So it is very difficult for Ram Singh
to find such a person who wants his horse and agree to sell his cow to Ram Singh. The only thing
that can solve their problem is money. Money is a thing which is commonly accepted as a
medium of exchange. So, if Ram Singh have money, he can buy cow without selling his horse or
he can sell his horse first then with the money he can buy the cow.
3. How do banks mediate between those who have surplus money and those who need
money?
Ans-
Banks accept the deposits of the people. They use the major portion of these deposits to extend
loans. Banks mediate between those who have surplus money (the depositors) and those who
are in need of money (the borrowers) Banks charge a high interest rate on loans than what they
offer on deposits. The difference between charged and paid money is their main source of
income.
4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Ans-
On ten rupee note, following words are written.
"I promise to pay the bearer the sum of ten rupees" This means that the governor of the RBI
promises to the person who holds the note to pay the note amount. It also means that the
currency belongs to the bearer only.
5. Why do we need to expand formal sources of credit in India?
Ans- Formal sector loans need to be expanded because it is necessary for everybody to receive
the benefit of these loans. These loans help the borrower to improve their life standards. It is also
necessary for the banks and co-operative societies to increase their lending particularly in rulal
areas, so that the dependence of those people reduce from the informal sector and the most
important thing is that the formal credit is distributed more equally so that the poor can benefit
from the cheaper loans.
6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Ans-
SHGs (Self Help Groups) are the groups of 15-20 people usually belonging to one neighbourhood
who meet and save regularly. These savings depend on the ability of the people. These savings
may be Rs. 25, Rs. 100 or more than 100. The member can take small loan from these SHGs and
the group charges interest on that loan but that is less than the money lender's interest rate. The
SHGs can also receive loan from the banks to expand their business. The basic idea behind these
SHGs is to make the poor people financially strong and self-reliant.
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 to certain borrowers because banks feels that these
borrowers will not repay the loan in the given time or some time certain borrowers take money
on fake assets. So the banks try to avoid such borrowers.
8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this
necessary?
Ans-
The Reserve Bank of India supervises the functioning of banks. The RBI monitors whether the
banks actually maintain the cash balance or not.
Similarly, the RBI supervises 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. Periodically,
banks have to submit information to the RBI on how much they are lending, to whom, at what
interest rate etc. Thus, in such ways the RBI supervise the functioning of banks.
9. Analyse the role of credit for development.
Ans-
Credit can play an important role in the development of an economy. If the formal sector lends
more loan to the borrowers, this would lead to higher incomes because many people could then
borrow cheaply for variety of different needs. They could grow crops, do business, set up small-
scale industries etc. They could set up new industries or trade in goods. So, we can say that cheap
and affordable credit is crucial for the development of a country.
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 decided to borrow the money from the formal sector for his small business because this
will be affordable and cheaper for him in comparison to borrow money from local money lender.
11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(a)
Why might banks be unwilling to lend to small farmers?
Ans- These small farmers have no collateral or assets for security.
(b)
What are the other sources from which the small farmers can borrow?
Ans- These small farmers usually borrow loans from local money lender.
(c)
Explain with an example how the terms of credit can be unfavourable for the small farmer.
Ans- The terms of credit can be unfavourable for the small farmers because of the crop failure. In
this situation credit pushes the farmers into debt trap.
(đ)
Suggest some ways by which small farmers can get cheap credit.
Ans- The small farmers can get cheap credit from banks and co-operative societies.
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)
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.
Ans- (i) poor
(ii) Higher
(iii) RBI
(iv) deposits
(v) Collateral
13. Choose the most appropriate answer.
(i) In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.
(ii)Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.
Ans- (i) (b) Members, (ii) (c) Employers.
