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 since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.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.
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.
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