Money and Credit

Q20. Inspite of so many disadvantages people in rural areas are still more dependent on informal sources of credit. Give reasons.
Ans. 1. Banks are not present everywhere in rural India.
2.Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
3.  bank loans require proper documents and collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.
4.  Informal lenders such as moneylenders, on the other hand, know the borrowers personally and
hence are often willing to give a loan without collateral.
5. The borrowers can, if necessary, approach the moneylenders even without repaying their earlier loans which is not possible in case of formal sector loan.

Q21. What is the main idea behind SHG. Write any four features of SHGs ?
Ans. The idea behind SHGs is to organise rural poor, in particular women, into small Self Help Groups and pool their savings.
2. A typical SHG has 15-20 members , usually belonging to one neighborhood, who meet and save regularly.
3. Savings per member varies from Rs. 25 to Rs. 100 or more.
4. Members can take small loans from the group itself to meet their needs.
5. The group charges interest on these loans but this is still less than what the money lender charges.

Q22. How is the work of SHGs administered ?
Ans. Most of the important decisions regarding the savings and loan activities are taken by the group
members.
2. The group decides as regards the loans to be granted — the purpose, amount, interest to be charged, repayment schedule etc.
3. Also, it is the group which is responsible for the repayment of the loan. Any case of nonrepayment
of loan by any one member is followed up seriously by other members in the group.

Q23. What are the advantages of SHGs particularly to rural  women ?
Ans. banks are willing to lend to the poor women when organised in SHGs, even though they
have no collateral.
2. The SHGs help borrowers overcome the problem of lack of collateral. They can get timely loans
for a variety of purposes and at a reasonable interest rate.
3. SHGs are the building blocks of organisation of the rural poor. Not only does it help women to become financially self-reliant.
4.  The regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc.

Q24. Exlain the role played by the GBBS in meeting the credit needs of the poor ?
Ans. Grameen Bank of Bangladesh is started in the 1970s as a small project, Grameen Bank in October 2014 has over 8.63 million members in about 81,390 villages spread across Bangladesh. Almost all of the borrowers  are women and belong to poorest sections of the society. These borrowers have proved that not only are poor women reliable borrowers, but that they can start and run a variety of small income-generating activities successfully.

Q25. Who is the founder of GBB ?
Ans. Professor Muhammad Yunus, is the founder of Grameen Bank, and recipient of 2006 Nobel Prize for Peace.

Q26. Differentiate between formal and informal sources of credit ?
Ans. Formal Sources 
1. They follow those sources of credit which are registered by the government and have to follow its rules and regulations.
2. RBI supervises the functioning of formal sources of credit.
3. They generally charges the lower rate of interest.
4. Their main motive is social welfare.
5. For eg. - Banks and Cooperatives.

Informal Sources of Credit 

1.  This include those small and scattered units which are largely outside the control of the government.
2. There is no organisation which supervises the credit activities.
3. They charge much higher rate of interest.
4. Their main motive is profit making.
5. For eg. traders , moneylenders , relatives etc.

Money and Credit
Q15. Who supervises the functioning of formal sources of crdit in India and how ?
Ans. 1. The Reserve Bank of India supervises the functioning of formal sources of loans.
2. The RBI monitors the banks in actually maintaining cash balance.
3.Similarly, the RBI sees 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.
4.  Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.

Q16. State the main features of informal sector loan ?
Ans. There is no organisation which supervises the credit activities of the lenders in the informal sector.
2. They can lead whatever interest rate they choose.
3. There is no one to stop them from using unfair means to get their money back.
4. Most of the informal lenders charge a much higher interest on loans.

Q17. How do informal sector put a person into a higher debt trap ?
Ans. 1. the cost to the borrower of informal loans is much higher.
2. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
3. Hence, borrowers have less income left for themselves .
4. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt trap.

Q18. Explain how cheap and affordable lead to the development of a country ?
       or
How can banks and cooperatives lead to the development of a country ?
Ans. Due to the disadvantages of informal sources of credit and less excessiblity of formal sources banks and cooperatives societies need to lend more.
2. This would lead to higher incomes and many people could then borrow cheaply for a variety
of needs.
3. They could grow crops, do business, set up small-scale industries etc.
4. They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the
country’s development.

Q19. Why is it necessary for banks and cooperatives to increase their lending ?

Ans. 1. It is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces.
2. While formal sector loans need to expand, it is also necessary that everyone receives these loans.

Money and Credit

Q8. Why do the money deposit in bank is called the demand deposit ?
Ans.  They deposit it with the banks by opening a bank account in their name .
2. Banks accept the deposits and also pay an amount as interests on the deposits.
3.People's money is safe with the banks and it earns an amount as interest .
4.The People also have the provision to withdraw the money as and when they require. since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.

Q9. Which is the most common form of withdrawing money from the bank. Define it ?
Ans. The most common form of withdrawing money from the bank is  the cheque.  A cheque is a
paper instructing the bank to pay a specific amount from the person’s account to the person in
whose name the cheque has been issued.The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.

Q10. What percentage of their deposits do the banks in India keep as a loan and why ?
Ans. banks in India these days hold about 15 per cent of their deposits as cash. This is kept as
provision to pay the depositors who might come to withdraw money from the bank on any given day.

Q11. Explain the loan activity of the bank ?
Ans.1.  Banks use the major portion of the deposits to extend loans.
 2. Banks make use of the deposits to meet the loan requirements of the people.
 3. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers).
4. Banks charge a higher interest rate on loans than what they offer on deposits.
5. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

Q12. Define Credit.
Ans. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Q13. For What purpose there is mainly the demand for credit in rural area ?
Ans.1) In rural areas, the main demand for credit is for crop production.
 2) Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc.
3) There is a minimum stretch of three to four months between the time when the farmers buy these inputs and when they sell the crop.
4)  Farmers usually take crop loans at the beginning of the season and repay the loan after harvest.
 5) Repayment of the loan is crucially dependent on the income from farming.

Q14. Define Collateral and Terms of Credit .
Ans. collateral - Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) and  uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.

b) Terms of credit - Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.

class -10th, economics, ch-3 ( Money and credit)

class - 10th , Economics, ch-3 ( Money and Credit)
Q1. What is barter system ?
Ans. When  goods are  directly exchanged   for goods without the use of money, it is called barter system.

Q2. What do you mean by double coincidence of wants ?

Ans. When both parties have to agree to sell and buy each others commodities. Then it is known as double coincidence of wants.

Q3. what is the use of making transaction in money ?
Ans. A person holding money can easily exchange it for any commodity or service that he or she might want. Money eliminates the need for double coincidence of wants.

Q4. Why is money called the medium of exchange ?
Ans. Money by providing the crucial intermediate step eliminates the need for double coincidence of wants. Since money acts as an intermediate in the exchange process, it is called a medium of exchange.

Q5. Mention the various form of money used since the ancient times ? How is the modern form of money different from various forms of money used in the past ?

Ans. Before the introduction of coins, a variety of objects was used as money. For example, since the very early ages, Indians used  grains and cattle as money. Thereafter came the use of metallic coins — gold, silver, copper coins — a phase which continued well into the last century. Modern forms of money include currency is not made of precious metal such as gold, silver and copper . Unlike grain and cattle. 

Q6. State the Indian law with respect to money ?

Ans.According to law  the Reserve Bank of India issues currency notes on behalf of the

central government. As per Indian law, no other individual organisation is allowed to issue

currency. Moreover, 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.

Q7. What do most of the people do with the surplus money  ?

        or

What is the advantage of depositing money in the bank ?

Ans. People deposit their surplus money in the bank by opening a bank account. Banks accept the deposits and also pay an amount as interest on the deposits. In this way people's money is safe with the banks and it earns an amount as interest.