NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Important Concepts And Terms

Barter System: A system of exchange of goods with goods without the use of money.

Financial System: An institution through which financial surplus in the economy is mobilized.

Money: Anything that can be accepted as a medium of exchange.

Collateral: An asset that the borrowers own and use as a guarantee to the lender until the loan is repaid.

Credit: An agreement in which the lender supplies the borrower with money, goods, or services in return for the promise of future payment.

Cheque: A cheque is a paper instruction to a bank by the depositor to make a stipulated payment to the person in whose favor the cheque is made.

Paper Money: Currency note issued by the central government.

Debt-trap: A situation in which borrowers find it difficult to repay the loan.

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Flowchart

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Exercises

Question 1. In situations with high risks, credit might create further problems for the borrower. Explain.

Answer:

In situations with high risks, credit might create further problems for the borrower. This is also known as a debt trap.

Taking credit involves an interest rate on the loan and if this is not paid back, the borrower is forced to give up his collateral or asset used as a guarantee, to the lender.

If a farmer takes a loan for crop production and the crop fails, loan payment becomes impossible. To repay the loan the farmer may sell a part of his land making the situation worse than before.

Thus, in situations with high risks, if the risks affect a borrower badly, he ends up losing more than he would have without the loan.

Question 2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Answer:

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 exchange, money removes the need for a 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 and 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 services that he needs. This is because money acts as a medium of exchange.

Question 3. How do banks mediate between those who have surplus money and those who need money?

Answer:

Banks keep a small portion of deposits as cash (15%) for themselves (to pay the depositors on demand).

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.

Question 4. Look at a 10-rupee note. What is written on the top? Can you explain this statement?

Answer:

“Reserve Bank of India” and “Guaranteed by the Central Government” are written on the 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 rupees as a medium of payment that cannot be refused in setting transactions in India.

Question 5. Why do we need to expand formal sources of credit in India?

Answer:

We need to expand formal sources of credit in India due to reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much.

1. Cheap and affordable credit is essential for a country’s development.
2. Banks and co-operatives should increase their lending, particularly in rural areas.

Question 6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Answer:

The basic idea behind the SHGs is to provide a financial resource for the poor through organising 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 organise rural poor especially women into small Self Help Groups.
2. To collect the 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 responsible rates of interest and easy terms.
6. To provide a platform to discuss and act on a variety of social issues such as education, health, nutrition, domestic violence, etc.

Question 7. What are the reasons why the banks might not be willing to lend to certain borrowers?

Answer:

The banks might not be willing to lend to certain borrowers due to the following reasons:

1. Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements.
2. For borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
3. The banks might not be willing to lend to those entrepreneurs who are going to invest in a business with high risks.
4. One of the principal 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 returns on the funds.

Question 8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Or

How does the Reserve Bank of India supervise the functioning of Banks? Why is this necessary?

Answer:

The Reserve Bank of India supervises the functioning of banks in a number of – ways:

1. Commercial banks are required to hold part’ of their cash reserves with the RBI. It (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 businessmen 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.

Question 9. Analyze the role of credit for development.

Answer:

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.

Question 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.

Answer:

Manav will decide whether to borrow from the bank or the moneylender on the basis of the following terms of credit:

1. Rate of interest.
2. Requirements include the availability of collateral and documentation required by the banker.
3. 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.

Question 11. In India, about 80% of farmers are small farmers, who need credit for cultivation.

1. Why might banks be unwilling to lend to small farmers?
2. What are the other sources from which the small farmers can borrow?
3. Explain with an example how the terms of credit can be unfavorable for small farmers.
4. Suggest some ways by which small farmers can get cheap credit.

Answer:

1. Bank loans require proper documents and collateral as security against loans.
2. 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.
3. Apart from banks, small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs, etc.
4. The terms of credit can be unfavourable for small farmers which can be -explained by the following:
5. Example: Ramu, a small farmer borrows from a local moneylender at a high rate of interest, i.e., 10 percent 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.
6. Small farmers can get cheap credit from different sources like – Banks, Agricultural Cooperatives, and SHGs.

Question 12. Fill in the blanks:

1. Majority of the credit needs of the ________ households are met from informal sources.
Answer: Poor

2. ______ costs of borrowing increase the debt burden.
Answer: High

3. ______ issues currency notes on behalf of the Central Government.
Answer: Reserve Bank of India

4. Banks charge a higher interest rate on loans than what they offer on _______
Answer: Deposits

5. _______ is an asset that the borrower owns and uses as a guarantee until the
the loan is repaid to the lender.
Answer: Collateral

Question 13. Choose the most appropriate answer.

1. In an SHG most of the decisions regarding savings and loan activities are taken by

1. Bank
2. Members
3. Non-government organization

Answer: 2. Members

2. Formal sources of credit do not include

1. Banks
2. Cooperatives
3. Employers

Answer: 3. Employers

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Short Answer Questions

Question 1. Which are the two major sources of formal sector credit in India? Why do we need to expand the formal sources of credit?

Or

Name two formal sources of credit. Why there is a need to expand them?

Answer:

Two sources of formal sector of credit in India include loans from banks and cooperatives, RBI supervises their functions of giving loans. A lower rate of interest is charged as compared to informal sources of credit on these loans.

Formal credit can fulfill various needs of people by providing cheap and affordable credit.

Question 2. In India, the rupee is widely accepted as a medium of exchange. Explain

Or

What are the modern forms of money currency in India? Why is it accepted as a medium of exchange? How is it executed?

Answer:

Modern form of money. Paper notes and coins. These are accepted as a medium of exchange, because:

Read and Learn More Class 10 Social Science Solutions

1. It is authorized as a legal tender by the Union Government of India.
2. Its demand and supply can be regularised and controlled by the RBI.
3. In India, the law legalizes the use of the rupee as a medium of payment that cannot be refused in settling transactions in India. No individual can legally refuse a payment made in rupee.
4. In India, the value of goods, or services is measured in rupee.

Question 3. What is the main source of income for banks?

Answer:

The main source of income for banks is the difference between the interest rates charged by borrowers and what is paid to depositors.

Question 4. What do the banks do with the ‘Public Deposits’? Describe their working mechanism.

Answer:

Banks accept deposits from the public and use the major portion of these deposits to extend loans. There is a huge demand for loans for various economic activities.

Banks make use of these deposits to meet the loan requirements of the people and earn interest.

This is, in fact, the main source of income for the banks. In this way, banks act as a mediator between those who have surplus funds (the depositors) and those who need these funds (the borrowers).

Banks charge a higher interest rate on loans than what they offer on deposits.

Question 5. What are demand deposits? Describe any three salient features of demand deposits.

Answer:

People with surplus money or extra amount deposit it in banks. The banks keep the money safe and give an interest on it. The deposits can be drawn at any time on demand by the depositors.

Features:

1. The demand deposits are encashable by issuing cheques and have the essential features of money.
2. They make it possible to directly settle payments without the use of cash.
3. Since demand drafts/cheques are widely accepted as a means of payment along with currency, they constitute money in the modern economy.

Question 6. How does the use of money make it easier to exchange things?

Answer:

Unlike the barter system, exchange by using money does not need a double coincidence of wants. Hence, money makes it easier to exchange things. Let us take an example of a student who wants to sell his old books and wants to buy a guitar in lieu of that.

If he opts for the barter system, he will have to search for a person who may be interested in giving off his guitar and taking old books. But finding such a person can be difficult and time-consuming.

Question 7. Can you think of some examples of goods/services being exchanged- or wages being paid through barter?

Answer:

The barter system does exist to some degree in our society. Farmers often use this system of exchange to barter different types of farm produce.

Even some friends may exchange certain items with each other. Some hawkers sell trinkets and edible stuff instead of old bottles and plastic containers.

Question 8. Compare the terms of credit for the small farmer, the medium farmer, and the landless agricultural worker in Sonpur.

Answer:

Question 9. Why will Arun have a higher income from cultivation compared to Shyamal?

Answer:

Arun secured a loan from a formal source, i.e., a commercial bank at the rate of interest of 10% per annum, while Shyamal took a loan from a village moneylender at an interest of 5% per month.

• Arun is in a better position to repay the loan as compared to Shyamal because his terms of repayment of the loan are easier compared to Shyamal’s. Arun can also get a fresh loan after a few years.
• On the other hand, Arun is free to sell his produce but Shyamal is bound to sell his produce at a low price only to the moneylender who gave him the loan.
• Arun is liable to get a fresh loan against the cold storage receipt where he may store his produce.

Question 10. Can everyone in Sonpur get credit at a cheap rate? Who are the people who can?

Answer:

Everyone in Sonpur cannot get credit at a cheap rate of interest.

The people who can afford to get credit at a cheap rate are those who can produce collateral as security, those who have organized themselves in a cooperative society, and those who can fulfill the documentation requirements.

Question 11. Should there be a supervisor, such as the Reserve Bank of India, that looks into the loan activities of informal lenders? Why would its task be quite difficult?

Answer:

Yes, there must be a supervisor to monitor the functioning of the informal lenders. But this is not an easy task. There would be many practical difficulties to do so.

1. The informal sector constitutes millions of people who have a different kind of business of their own, besides lending.
2. These people are not registered with any agency. They also do not identify themselves as lenders.
3. These people amass huge money by lending because there is a great demand for loans from the poor sections of society.
4. These poor borrowers would never dare to complain against the powerful lobby of defaulting lenders, especially because they can’t borrow from formal sources as they have no means to provide collateral.

Question 12. Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households?

Answer:

The share of the formal sector credit is higher for the richer households because of the following reasons.

1. Richer households are in a better position to provide collateral and other necessary documents that are required by the banks and cooperatives.
2. Richer households have the means to exert pressure on banks and cooperatives to sanction their loans.

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Multiple Choice Questions

Question 1. Which of the following sources charges the lowest rate of interest?

1. Moneylenders
2. Co-operative societies
3. Traders and landlords
4. None of these

Answer: 2. Co-operative societies

Question 2. Which is an important source of formal credit?

1. Landlords
2. Moneylenders
3. Banks
4. Relatives and friends

Answer: 3. Banks

Question 3. Terms of credit include

1. Duration of loan and repayment
2. Collateral security
3. Interest rate
4. All of these

Answer: 4. All of these

Question 4. A crop loan is needed for how many months?

1. Three to four months
2. Eight to ten Months
3. Twelve months
4. Six months

Answer: 1. Three to four months

Question 5. Which of the following deposits has the highest interest?

1. Demand Deposits
2. Savings Bank Deposits
3. Fixed Deposits
4. None of these

Answer: 3. Fixed Deposits

Question 6. Which of the following deposits are made by the businessman in banks?

1. Savings Bank Deposits
2. Demand Deposits
3. Fixed Deposits
4. All of these

Answer: 2. Demand Deposits

Question 7. Why is money accepted, as a medium of exchange?

1. Accepted by all
2. Legal Sanction
3. Issued by RBI
4. All of these

Answer: 4. All of these

Question 8. The main difficulty of the barter system is:

1. Indivisibility of goods
2. Coincidence of wants
3. Medium of exchange
4. All of these

Answer: 4. All of these

Question  9. Double coincidence of wants means:

1. Matching of demand
2. Matching of supply
3. Matching one’s supply with another’s demand
4. All are incorrect

Answer: 3. Matching one’s supply with another’s demand

Question 10. Barter system means:

1. Exchange of goods with money
2. Exchange of services with money
3. Exchange of goods with other goods
4. All the above

Answer: 3. Exchange of goods with other goods

NCERT Solutions For Class 10 Economics Chapter 3 Money And Credit Passage Based Questions

Question 1. Read the given below passages and answer the following questions.

Festival Season

• It is festival season two months from now and the shoe manufacturer, Salim, has received an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month’s time.
• To complete production on time, Salim has to hire a few more workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses, Salim obtains loans from two sources.
• First, he asks the leather supplier to supply leather now and promises to pay him later.
• Second, he obtains a loan in cash from a large trader as an advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month At the end of the month Salim is able to deliver the order; make a good profit, and repay the money that he had borrowed.

Swapnas Problem

• Swapna, a small farmer, grows groundnuts on her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation, hoping that her harvest will help repay the loan.
• Midway through the season, the crop is hit by pests and the crop fails. Though Swapna sprays her crops with expensive pesticides, it makes little difference.
• She is unable to repay the moneylender and the debt grows over the year into a large amount. Next year, Swapna will take a fresh loan for cultivation. It is a normal crop this year.
• But the earnings are not enough to cover the old loan. She is caught in debt. She has to sell a part of the land to pay off the debt.

1. Fill the following table.

Answer:

2. Supposing Salim continues to get orders from traders. What would be his position after 6 years?

Answer:

Supposing Salim continues to get orders from traders for the next 6 years, he may use his profits to fund his shoe business in the future. He may not be required to take a loan in the future from any source of credit.

3. What are the reasons that make Swapna’s situation so risky? Discuss factors – pesticides; the role of moneylenders; climate.

Answer:

The Reasons That Make Swapna’s Situation So Risky Are:

1. Failure of crops due to attack on the crops by pests. The use of pesticides would have reduced this risk.
2. The moneylender had charged high interest as it was an informal source of credit. When her crops failed, she was not in a position to repay the loan. She got trapped in the debt trap.
3. The crops also fail due to climatic factors like too little or too much rainfall. This also added to the risk of Swapna.

Question 2. A House Loan

Megha has taken a loan of ₹5 lakh from the bank to purchase a house. The annual interest rate on the loan is 12 percent and the loan is to be repaid in 10 years in monthly instalments.

Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan.

The bank retained as collateral the papers of the new house, which will be returned to Megha only when she repays the entire loan with interest. ‘After going through the account of after going Megha’s House Loan’, fill in the following details of her housing loan.

Answer:

Question 3. Fill in the blanks choosing the correct option from the brackets.

While taking a loan, borrowers look for easy terms of credit. This means _______ (low/high) interest rate, ______ (easy/tough) conditions for repayment,  _____ (less/more) collateral, and documentation requirements.

Answer: Low, Easy, Less.

Question 4. Sort Out Various Sources of Credit.

List the various sources and uses of credit in Sonpur in the following passage.

Loans From Cooperatives: Besides banks, the other major sources of cheap credit in rural areas are the cooperative societies (or cooperatives). Members of a cooperative pool their resources for cooperation in certain areas.

There are several types of cooperatives possible such as farmers cooperatives, weavers cooperatives, industrial workers cooperatives, etc. Krishak Cooperative functions in a village not very far away from Sonpur.

It has 2300 farmers as members. It accepts deposits from its members. With these deposits as collateral, the Cooperative has obtained a large loan from the bank. These funds are used to provide loans to members.

Once these loans are repaid, another round of lending can take place.

Krishak Cooperative provides loans for the purchase of agricultural implements, loans for cultivation and agricultural trade, fishery loans, loans for the construction of houses, and for a variety of other expenses.

Answer:

The Various Sources Of Credit In Sonpur Are:

1. Village moneylender;
2. Agricultural trader;
3. Bank; and
4. Landowner-employer.

There Have Been Following Uses Of Credit In Sonpur In The Concerned Passages:

1. For cultivation of farm inputs
2. To meet the daily expenses
3. Sudden illness
4. Function in the family

Question 5. Diagram Interpretation

Study the diagram given below and answer the questions that follow:

1. Which are the two major sources of credit for rural households in India?
2. Which one of them is the most dominant source of credit for rural households?
3. What is the most dominant source of credit? Write two reasons.

Answer:

1. Moneylenders and cooperative societies
2.  Moneylenders
3. 1. Moneylenders do not ask for collateral.
   2. Complicated paperwork or documentation is not involved