Money and Credit Class 10 Extra Questions Economics Chapter 3
Money and Credit Class 10 Extra Questions Economics Chapter 3
Money and Credit Class 10 Extra Questions Economics Chapter 3
Question 2.What is the basic feature of double coincidence of wants ? In which system is it practiced ?[CBSE 2015]
Answer:
Basic feature is that both parties agree to sell and buy each other’s commodities. It is practiced in Barter system.
Question 7.Why are deposits with the banks called demand deposits ?
Answer:
Deposits with the banks are called demand deposits because they can be withdrawn on demand.
Question 9.How do the demand deposits share the essential features of money ?
Answer:
The facility of cheques against demand deposits make it possible to directly settle payments without the use of cash. Since demand deposits
are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.
Question 11.How much amount of the deposits is kept as cash by the banks and why ?
Answer:
Banks hold about 15 per cent of their deposits as cash to pay the depositors who might come to withdraw money from the bank on any given
day.
Question 15.In rural areas which is the main demand for credit ?
Answer:
In rural areas, the main demand for credit is crop production and purchase of pesticides and fertilizers.
Question 19.Which are the major sources of cheap credit in rural areas ?
Ans.
Banks and the cooperative societies.
Question 21.Which authority does supervise the functioning of formal sources of loans and how ?
Answer:
Question 22.State any one difference between the formal lenders and the informal lenders.
Answer:
Most of the informal lenders charge a much higher interest on loans.
Question 23.What was the difference between the rich households and poor households in getting loans from the formal and informal
sectors in 2003 ?
Answer:
In 2003 the position was as mentioned below :
Question 27.Which Nobel Prize was awarded to Professor Muhammad Yunus and when ?
Answer:
In 2006, Professor Muhammad Yunus of Bangladesh was given Nobel Prize for Peace.
Question 28.Which bank was founded by Prof. Muhammad Yunus and why ?
Answer:
Grameen Bank of Bangladesh was started by Prof. Muhammad Yunus to meet the credit needs of the poor at reasonable rates.
Question 1.What is meaning of Barter system ? Why is double coincidence of wants being an essential feature of a Barter system ? [CBSE
2015]
Answer:
A system in which goods are directly exchanged without the use of money is called barter system.
Double coincidence of wants means when both the parties – seller and purchaser – agree to sell and buy each other’s
commodities. It implies that what a person desires to sell is exactly what the other wishes to buy. No money is used in
such an arrangement. Therefore, it is an essential feature of barter system.
Question 2.Why is modern currency accepted as a medium of exchange without any use of its own ? Find out the reason. [CBSE 2015]
Answer:
Modern currency is accepted as a medium of exchange without any use of its own due to reasons as mentioned below :
In India, the Reserve Bank of India issues currency notes on behalf of the central government.
As per Indian law, no other individual or organisation is allowed to issue currency.
The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.
No individual in India can legally refuse a payment made in rupees. Hence the rupee is widely accepted as a medium of
exchange.
Question 3.“Deposits in the hanks are beneficial to the depositors as well as to nation.” Examine the statement.[CBSE 2016]
Answer:
(1) Deposits are beneficial to the depositors as mentioned below :
Banks accept the deposit and pay as interest rate on the deposits.
Money is safe with the bank.
People (depositors) may withdraw the money as and when they require.
Depositors may make payments through cheques instead of cash.
(2) Deposits are beneficial for the banks too as mentioned below :
Banks keep only a small proportion of deposits. Now a days, banks keep about 15 per cent as cash in order to pay the
depositors who might come to withdraw money from the bank on any given day.
Bank use the major portion of the deposits to extend loans. There is huge demand for loans for various economic
activities. Banks make use of the deposits to meet the loan requirements of the people. Businessmen and other
entrepreneurs take loans from the banks and open factories. They help in the advancement of the economy. Thus, the
deposits are beneficial to the nation.
Question 4.What is a collateral ? What happens if a borrower fails to repay the loan ? Give some examples of collateral.
Answer:
1. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.
2. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
3. Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing.
Question 5.Explain three terms of credit. [CBSE 2016]
Answer:
(1) The terms of credit are as mentioned below :
1. Interest rate.
2. Collateral and documentation requirement.
3. Mode of repayment.
(2) The terms of credit vary substantially from one credit arrangement to another.
(3) Interest rate in the formal sector e., banks and cooperative is about 9-10 per cent but in informal sector, the moneylender and grain
merchants etc. charge much higher interest. Thus, the cost to the borrower of informal loans is much higher.
(4) Moneylenders take collateral such as land. As the interest rate is higher and if the borrower is unable to repay for any reason, they try to
exploit the borrower by taking control of the collateral e., land etc.
(5) Banks insist on documentation requirement and collateral before granting loans. That is why it becomes difficult for the poor to get loans
from the banks.
Question 6.How is money transferred from one bank to another bank account ? [CBSE 2016]
Or
Describe how cheque payments are made and realised.
Answer:
If a person has to make a payment, he issues a cheque for a specific amount in his name such as TPDDL. The TPDDL will deposit the
cheque in their own account in the bank. Thereafter, the money is transferred from one bank to another bank account in a couple of days.
Thus, transaction takes place without any payment of cash from one bank account to another bank account.
Question 7.Describe two different credit situations where credit plays a positive role and a negative role.
Or
Describe the positive role of credit with examples. [CBSE 2016]
Answer:
Two different credit situations where credit plays a positive and a negative role are as given below :
1. Credit and a positive role : A trader obtains credit to meet the working capital needs of production. The credit helps
him to meet the ongoing expenses of production, complete production on time and thereby increase his earnings. Thus,
he is able to repay the loan that he had borrowed in time. In such a situation credit plays a positive role and the
borrower is able to improve his condition.
2. Credit and a negative role : A farmer takes a loan to meet the expenses of cultivation hoping that there would be good
harvest and he would repay the loan. The harvest, however, fails and the farmer is unable to repay the loan. Next year
again he takes loan, but the crop is not good and loan repayment cannot be made. The borrower has no option but to sell
a part of his land to pay off the loan. Loan/credit instead of helping the farmer improve his condition left him worse off.
He falls into debt-trap. Credit in this case pushes the borrower into a situation from which recovery is very painful.
Thus, in one situation credit helps to increase earnings and the person is better off than before. In the second situation
credit pushes the person into a debt trap and he has to sell a part of his land.
Question 8.
What are the differences between formal and informal sectors of credit or loans ?
Or
Explain any two features each of formal sector loans and informal sector loans.
Answer:
The main differences between formal sector and informal sector loans are as given below :
(1) Formal sector source are banks and cooperatives. (1) Informal sector sources are moneylenders, traders, employers,
(2) The banks and cooperatives charge less rate of interest i.e., about relatives and friends.
10 per cent per annum or so. (2) Informal sector sources charge higher interest Le., 3 to 5 per cent
(3) It results in more income and better condition of the borrower. per month.
There is improvement in his financial condition. (3) Higher rate of interest results in less income for the borrowers. It
(4) Reserve Bank of India supervises the functioning of formal sometimes leads to debt-trap.
sources of loans. (4) There is no organisation which supervises the credit activities of
Question 9.Why should credit at reasonable rates from the banks and cooperatives be available for all ?
Answer:
1. Credit at reasonable interest rates should be available for all so that they may increase their income and help in the
overall development of the country.
2. High interest rate do little to increase the income of the borrowers.
3. It is necessary that the banks and cooperatives increase their lending particularly in rural areas, so that the dependence
of the people on informal sources of credit reduces.
4. In addition to this more credit should be given to the poor to get maximum benefit from the cheaper loans.
5. This will help in increasing their income as well as standard of living.
Question 10.Describe the pattern of formal and informal sources of credit in urban areas. Why do we need to expand formal sources of
credit ?
Answer:
(1) The people in the urban areas are divided into four categories :
Poor households
Households with few assets
Well-off households
Rich households.
85 per cent of the poor households take loans from informal sources whereas only 10 per cent of the rich households take loans from
informal sources. 90 per cent of the rich households take loans from the formal sources.
(2) In urban areas, poor households suffer at the hands of informal sources. The same is the position in rural areas. Most of the informal
lenders charge a much higher interest on loans.
As a result of it, larger part of the earnings of the borrowers is used to repay the loan. In some cases, the amount to be repaid becomes
greater than the income of the borrower. This leads to debt-trap. These reasons make it necessary to expand the formal sources of credit i.e.,
banks and cooperatives which will make available cheap and affordable credit to the people.
Question 11.
What are Self-Help Groups ? Describe in brief their functioning including their aim and importance.
Answer:
(1) Atypical Self-Help Group has 15-20 members, usually belonging to one neighbourhood who meet and save regularly.
(2) The functioning of SHGs is as given below :
1. Aim : The aim of Self-Help Group is to organise rural poor, women in particular and collect their savings and to take
loans from the group to meet their needs. The group takes loan from the bank to create self-employment opportunities
for the members.
2. Working of the SHG : Decisions on loans and savings are taken by the group members. All matters relating to the
purpose, amount, interest rate, repayment schedule are decided by the group members. The group is responsible for the
repayment of the loan. Non-repayment of loan by any member is followed up seriously by other members of the group.
3. Importance :
(a) SHGs have helped borrowers overcome the problem of lack of collateral because the banks are willing to lend to the
poor women organised in SHGs, even though they have no collateral as such.
(b) The borrowers can get timely loans at a reasonable interest rate.
(c) It has helped women in the rural areas to become financially self-reliant.
(d) The meetings of the groups provide a platform to discuss and act on a variety of social issues such as health,
nutrition and domestic violence.
Thus, SHGs are playing a significant role in the improvement of the condition of the poor, particularly women.
Question 12.
Discuss the role played by Grameen Bank of Bangladesh in improvement of the condition of the poor particularly women.
Answer:
Grameen Bank of Bangladesh was started in the 1970s. It has now over 6 million borrowers in about 40,000 villages. Almost all the
borrowers are women and belong to poorest sections of the society. These borrowers have proved that not only are poor women dependable
borrowers, but they can start and run a variety of small income-generating activities successfully.
Thus, the Grameen Bank has played a significant role in the improvement of the condition of the poor women in Bangladesh. Professor
Muhammad Yunus, the founder of Grameen Bank and recipient of 2006 Nobel Prize for Peace has stated about the need of granting loan to
the poor on reasonable rates of interest as follows :
“If credit can be made available to the poor people on terms and conditions that are appropriate and reasonable these millions of
small people with their millions of small pursuits can add up to create the biggest development wonder.”