Important questions for Board exam for class 10 chapter wise ( Money and credit)

Important questions for Board exam for class 10 chapter wise ( Money and credit)

sms (smart studies ) February 04, 2021

 


Money and credit

NCERT Hindi Book explanation in English and tamil 

NCERT solutions Hindi सूरदास





 

Multiple Choice Questions 

1.Which among the following issues currency notes on behalf of the central government?[CBSE 2020]
(a)State Bank of India
(b)Reserve Bank of India
(c)Commercial Bank of India
(d)Union Bank of India   

Ans.(b)Reserve Bank of India
 

Explanation: The Reserve Bank of India is the monitoring agency and the Central Bank of India that issues currency on behalf of the Government of India. No other person can issue any legalised currency. Other banks are all involved in public dealing of money but don’t issue any currency.
 

2.Which one of the following options is NOT correct about a typical Self-Help Group?
(a)It has 15-20 members
(b)It does not give a man its membership
(c)Its members usually belonging to one neighborhood
(d)Saving per member varies in it. 

Ans.(b)It does not give a man its membership
 

3.What percentage of their deposits as cash, do the banks in India keep with themselves?
(a)20 percent
(b)15 percent
(c)12 percent
(d)10 percent
Answer(b)15 percent
 

Explanation: Banks in India these days hold about 15 percent of their deposits as cash in order to pay the depositors who might come to withdraw money from the bank on any given day.
 

4.Money is accepted as a medium of exchange because
(a)It is authorized by the government of India
(b)It is issued by the Reserve Bank of India
(c)It is legalised as a medium of payment in India
(d)All of these
Ans.(d)All of these
 

5.Find the Incorrect option [CBSE Marking Scheme 2019]
(a)Demand deposit share the essential features of money
(b)With demand deposit payments can be made without cash
(c)Demand deposits are a safe way of money transformation
(d)Demand deposit facility is like cheque
Ans.(d) Demand deposit facility is like cheque.
 

6.What do people do with the extra cash in hand? Choose the most correct option from the following:
(a)They deposit it with one of the informal lenders 
(b)They deposit it with an NGO
(c)They deposit it with the bank manager
(d)They deposit it with the banks by opening a bank account in their name.
Ans.(d) They deposit it with the banks by opening a bank account in their name.
 

7.When do people have the provision to withdraw money? 
 Choose the most appropriate option from the following:
(a)They can withdraw money at the time of severe illness
(b)They cannot withdraw money before it reaches to it maturity level.
(c)They can withdraw money as and when they require
(d)Both (a) and (b) 
Ans.(c)They can withdraw money as and when they require.
 

Explanation: People deposit money with the banks by opening a bank account in their name and receive an amount as interest from the bank on this deposit which can be withdrawn by them as and when they require it. 
 

Related Theory: 
Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. 
 

8.Money borrowed from banks and cooperative societies comes under which source of credit? 

(a)Informal
(b)Formal
(c)Semi-Formal
(d)None of the above
 

Ans.(b)Formal
 

Explanation:Formal sources of credit include Banks and the Cooperative Societies which provide credit at the low rate of interest to the borrowers and are regulated and supervised by the RBI on behalf of the Central Government in India. 
 

Related Theory: The informal lenders include moneylenders, traders, employers, relatives and peer groups. Such lenders are not monitored or regulated by any agency. Most of the times, lenders fix extremely high rates of interest and push borrowers into debt traps through their informal rules. Unorganised sources of Credit correspond to Informal sources of credit and cannot be trusted.
 

9.In a self-help group most of the decisions regarding savings and loan activities are taken by which one of the following:
(a)Bank
(b)Members
(c)NGOs
(d)All of these[NCERT]
Ans.(b)Members
 

10.Rita has taken a loan of `7 lakhs from the bank to purchase a car. The annual interest rate on the loan is 14.5 per cent and the loan is to be repaid in 3 years in monthly instalments. The bank retained the papers of the new car as collateral, which will be returned to Rita only when she repays the entire loan with interest. Analyse the loan information given above, and point out which one of the following is the correct option that describes the above statements accurately. [CBSE Marking Scheme 2019]
(a)Mode of re-payment
(b)Terms of credit
(c)Interest on loan
(d)Deposit criteria
Ans.(b) Terms of credit.
 

11.Formal sources of credit do not include[NCERT]
(a)Banks 
(b)Cooperatives
(c)Employers 
(d)Both (a) and (b) 
Ans.(c)Employers
 

Explanation: Employers, moneylenders, neighbours, friends, relatives etc. fall under informal sources of credit who charge high interest on loans that they give to the borrowers. 
 

12.Arrange the following forms of currency according to their usage from oldest to recent use: 

(i)Paper Currency
(ii)grain and cattle
(iii)coins
(iv)Net banking and digital payments
(a)(iii)—(iv)—(i)—(ii)
(b)(ii)—(iii)—(i)—(iv)
(c)(i)—(ii)—(iiii)—(iv)
(d)(iv)—(iii)—(ii)—(i)
 

Ans.(b)(ii)—(iii)—(i)—(iv)
 

Explanation: In early times, Grain and Cattle were used as barter to buy items of necessity. This was later replaced by silver, golden and copper coins. Post the invention of paper, paper currency dominated the scene. Today net banking and digital payments have replaced paper currency.
 

13.Bank deposits are also called ......................... .
(a)Collateral
(b)Demand deposits
(c)Cheque
(d)Currency
 

Ans.(b)Demand deposits
 

Explanation: Banks provide the facility of depositing surplus cash of citizens safely. They also provide interest on this deposit. Customers can withdraw or deposit cash at any time according to their demand. Hence this is called a demand deposit.
 

14.Terms of credit do not include:
(a)Bank deposits
(b)Interest rate
(c)Collateral
(d)Mode of repayment
 

Ans.(a)Bank deposits
 

Explanation: Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit. Together, they are all that a lender or borrower needs to consider before borrowing or lending money.
 

15.Rampur is an area where 80% people borrow money from the bank while 10% don’t borrow and the rest 10% take it from their friends, relatives or local moneylenders. Where will Rampur be situated?
(a)In an Urban Region
(b)Semi-Urban area
(c)In a Rural region
(d)Capital of a country
 

Ans.(a)In an Urban Region
 

Explanation: Rampur is located in an area with proper access to banks, however not all the people are convinced borrowers from the bank. In an urban area, most people go to bank while some people might also resort to friends and relatives for money, due to small or extremely urgent need.
 

Related Theory: Country’s capital is generally a High-tech city with all educated and skilled people. Hence Rampur can’t be a Capital. It cannot be situated in a rural area because of the large number of banks and easy accessibility. It cannot be a Semi-urban area due to similar reasons
 

 16.Find the correct option: 

(a) Collateral is what pushes the lender in to a painful debt trap situation. 
(b) Collateral is the amount that RBI gets from other banks. 
(c) Collateral is an asset that the borrower owns and uses as a guarantee to a lender against the amount borrowed.
(d) Collateral does not include jewellery. 
 

Ans. (c) Collateral is an asset that the borrower owns and uses as a guarantee to a lender against the amount borrowed. 
 

Explanation: Collateral acts like a guarantee to a lender until loan is repaid. If borrower fails to repay the loan, the lender can reimburse his loan by selling the collateral or confiscating it. 
 

Correct and Rewrite/ True-False 
17.Fill in the blanks/tables with suitable information:

 Ans.False Banks and cooperatives are formal sources of credit.

Explanation: Informal sources of credit are local moneylenders, sahukars, jewellers, relatives or friends who lend without any proper documentation and charge exorbitant rates of interest. Banks and Cooperatives are backed by the government and hence are formal sources of credit.

18.Double coincidence of wants is an essential feature of Barter system. State whether the statement is True or False. If false, correct the statement. 

Ans.True 

Explanation: For any barter system to work, double coincidence of wants- which means that both the parties must be willing to exchange his good for what the other party has to offer. This means borh parties have to want what the other person is selling at all times- is necessary because barter system doesn’t involve money as a medium of exchange.

19. ................... is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender. [NCERT] 

Ans. Collateral Explanation: Property such as land, building, vehicle, livestock, deposits with banks are some common examples of collateral used for borrowing. Match the Columns Choose the correctly matched option from the following: 

20. Match the correct people involved in a variety of occupations with the appropriate reason they might borrow money for:

Ans:

Column AColumn B
(a) Auto rickshaw driver(i) To buy a house
(b) A businessman whose factory has closed down(ii) To buy a shop of his own
(c) Small trader(iii) To revive his business
(d) A person in government service(iv)To buy his own vehicle
Column AColumn B
(a) Auto rickshaw driver(i) To buy his own vehicle
(b) A businessman whose factory has closed down(ii) To revive his business
(c) Small trader(iii) To buy a shop of his own
(d) A person in government service(iv)To buy a house

Assertion-Reason (A-R) In each of following questions, a statement of Assertion (A) is given followed by a corresponding statement of Reason (R). Select the correct answer to codes (a), (b) (c) or (d) as given below: 

(a) Both (A) and (R) are true and (R) is the correct explanation of (A). 

(b) Both (A) and (R) are true but (R) is not the correct explanation of (A). 

(c) (A) is correct but (R) is wrong. 

(d) (A) is wrong but (R) is correct. 

21. Assertion (A) : Not all the money that is deposited in the bank by the depositors is kept by the banks themselves. 

Reason (R) : They use it to further extend loans to people, so that the difference between interest earned and interest given can be further invested and the chain will continue to go on. 

Ans. (b) Both A and R are true but R is not the correct

explanation of A. Explanation: Banks make use of the deposits to meet the loan requirements of people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). They don’t invest the interest earned again, they use it to provide income to their employees. 

Ans. Krishna takes loan from an informal source (her landowner) who provides loan without collaterals or documents and charges a very high rates of interest for profit. The 5% per month interest has lead him into a debt trap.

 23. How is money beneficial in transactions? [CBSE 2017] 

Ans. Money has made transactions easy as it solves the problem of double coincidence of wants by acting as a medium of exchange. 

24. Give one example each of modern currency and older currency. [CBSE 2019] 

Ans. Examples of modern currency are paper bills/notes, coins, credit cards etc., whereas examples of older currency are coins made of precious metals like gold or silver and also terracotta coins, etc. 

Related Theory : Money can be defined as anything that acts as medium of exchange, store of value and unit of accounting to facilitate the economic activities and transactions. 

25. Explain the inherent problem of the ‘barter system’. [CBSE 2017] 

Ans. The inherent problem of the barter system is that it is not necessary that when one person is willing to exchange his/her goods, the person he/she wants to exchange with is also willing to do the same. 

Related Theory  For a barter trade to function, both parties have to agree to sell and buy each others commodities. This is known as double coincidence of wants. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. 

26. Why are demand deposits considered as money? [CBSE 2019]

Ans. Demand deposits are considered as money because they can be withdrawn from the bank as and when needed. Also, they are accepted widely as a means of payment by way of a cheque instead of cash. 

27. Which bank issues ‘currency notes’ in India on behalf of the central government ? [CBSE 2017] 

Ans. The Reserve Bank of India issues currency notes in India on behalf of federal government. 

Related Theory Reserve Bank of India (RBI) manages and monitors the working of other banks and also plays the role of a bank to other banks as well as government. 

28. How do the deposits with banks become their source of income? [CBSE 2016] 

Ans. Banks use a major portion of its deposits to extend loans to people, for which they charge high interests and this is how the deposits with banks become their source of income. 

Related Theory :The banks mediate between the depositors and the borrowers. Banks charge a higher interest rate on loans than what they pay on the deposits. The difference between the interest charged from the borrowers and what is paid to the depositors is, thus, the main source of income for the banks. 

29. Explain the reason for necessity of supervision by the Reserve Bank of India of formal sources of loans.[CBSE Topper 2019]

Ans:The supervision by the Reserve bank is necessary to ensure that 

 banks do not only give loans to profitable organisation and rich people  

poor people can benefit from the formal sources of credite

 bank maintains cash balance

30.How does the use of money make it easier to exchange things? Give an example. [CBSE Topper 2017]

Ans. Money acts as a medium of exchange. It helps people by saving their time. for e.g.) a Shoemaker who wants to buy wheat will first exchange his shoes for money and then money for wheat This is why money is helpful.

31. Why is money called a medium of exchange? [CBSE 2019] 

Ans. Money is accepted as a ‘medium of exchange’ because it acts as an intermediary in the process of exchange. A person holding money can easily exchange it for any commodity or service. 

Related Theory  Money helps to facilitate trade because people in the economy generally recognise it as valuable. Earlier, barter system was used as a medium of exchange and later, gold was adopted as an intermediary. 

32. What can be the alternative mode of payment in place of cash money? [CBSE 2017] 

Ans. Cheques and demand deposits’ are two alternative modes of payment that can be used in place of cash money.

Related Theory ¬ Digital payment through internet and mobile wallets is also a good alternative for cash. Plastic money like credit and debit cards are also used instead of cash in market. 

Ans. Currency is the form of money: paper notes and coins.

33.Explain the meaning of ‘Currency’. [CBSE Marking Scheme 2019]

Ans.Currency is the form of money: paper notes and coins

34. How is double coincidence of wants not appreciable in the contemporary scenario? [CBSE Marking Scheme 2019]

Ans. Double coincidence of wants not appreciable: What a person desires to sell is exactly not what the other wishes to buy. 

35. Why do banks ask for collateral while giving loans? 

Ans. Banks use collateral as a guarantee until the loan is repaid. [CBSE Marking Scheme 2018] 

36. Give any two examples of informal sector of credit. CBSE Topper 2018

 Ans. (a) credit from 'money lenders

(b) credit from family members

37. How do the Demand Deposits offer facilities?

Ans. Demand Deposits offer facilities as: It offers essential characteristics of money/ Safe transfer of money. [CBSE Marking Scheme 2019] 

38. What is credit? [NCERT] 

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.

39.What are formal sources of credit?

Ans. Banks and Cooperative societies which charge less interest on loan are called formal sources of credit. 

40. Give one reason that prevents a rural poor from getting a formal loan. 

Ans. Lack of collateral 

41. What is a cheque? 

Ans. A cheques 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. 

42. What do terms of credit include?

 Ans. The terms of credit include interest rate, collateral, documentation requirement, mode of payment. 

43.Why is the supervision of the functioning of formal sources of loans necessary?


 


 

 
 


44. Observe the picture carefully. Describe this image in your own words. 



Ans. This image showcases a meeting of a women self-help group. 

45. How do demand deposits have the essential features of money? Explain. [CBSE 2020] 

Ans. The most essential feature of money is that it becomes a medium of exchange to buy things. Demand deposits, like cheque, also fulfll this role. A cheque is a paper instructing the bank to pay a specifc amount from the person's account to the other person or to the account holder. Thus this facility involving cheques makes the settlement of payments possible without using cash. Since they are widely used alongside money as a medium of exchange, demand deposits have this feature, which is similar to money. 

46. Explain the three important terms of credit. [CBSE 2019] 

Related Theory The terms of credit may vary from one credit arrangement to the other, depending upon the nature of the borrower or lender. These are essential to discuss and decide before borrowing money from an organised source of credit. These terms ensure that the lender is not being exploited. 

47. Why do lenders ask for collateral while lending? Explain. [CBSE 2020]

48. Explain any three functions of the Reserve Bank of India. [CBSE 2019] 

Related Theory  The Reserve Bank of India is a very important part of the Indian economy. The RBI dictates interest rates and CRR limits to commercial banks. It makes advances and provide loans to the government whenever necessary. 

49. Describe the utility of Cheque. [CBSE 2017] The utility of cheque is as follows:

50. “The credit activities of the informal sector should be discouraged.” Support the statement with arguments. [CBSE 2018] 

51. Explain the role of credit for economic development. [CBSE 2020] 

52. ‘‘Credit can play a negative role.’’ Support the statement with arguments. [CBSE 2019] 

(2) Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. 

(3) Credit does no good to the borrower if he/she doesn’t utilise that money in a profitable manner. Sometimes, farmers borrow money to buy raw material to grow crops but due to some factors, the crop turns out to be a failure. The farmer is not able to repay the amount and thus falls into a debt-trap. 

53. “Banks are efficient medium of exchange.” Support the statement with arguments. [CBSE 2017] 

Ans. Banks are efficient  ediusm of exchang because: 

54. Why are service conditions of formal sector loans better than those of the informal sector? Explain. [CBSE 2019]

 Ans. 

The formal sector works under the supervision of the Reserve Bank of India. The rate of interest is very low. Commercial banks and cooperative societies are the main  sources of the formal source of credit. They provide ensured services and also have a set protocol for deliverance of loan activities. In the formal sector, the interest rate, collateral and documentation requirement, and the mode of repayment together comprise what we call the terms of credit. The terms of credit vary substantially from one credit arrangement to another. They may also vary depending on the nature of the lender and the borrower.

55. Why is it difficult for poor people to get loan from banks? [CBSE 2017]  

Ans. Limited availability of banks makes it difficult for poor people in rural areas to get loans from banks. Poor people don't have sufficient collateral and required documents to present to banks while borrowing.

Related Theory Poor people are not comfortable with bank official and their illiteracy restricts them from understanding the working of banks. At times, they don’t have proper documents to apply for the loan.

56. Why is it necessary to increase a large number of banks in rural areas? Explain. [CBSE 2019]

Ans.

It is necessary to increase a large number of banks in rural areas. The cost of informal loans is much higher and often leads to a debt trap. People who might wish to start a new enterprise by borrowing may not do so because of the high cost of borrowing in such a case. Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers Banks can change this. It is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence of the poor on informal sources of credit reduces. It is important that formal credit sources like banks are distributed more equally in rural and urban areas so that the poor can benefit from the cheaper loans.(Any 3 of 4 points can be written to get full marks)

Related Theory

There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. 

57. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.

58. Why do we need to expand formal sources of credit in India? Explain. 

Ans.

Expand formal sources

(1)To save people from the exploitation of Informal sector

(2)Formal charge a low interest on loans.

(3)To save from debt trap.

(4)It provides cheap and affordable credit.

(5)RBI also supervises the formal sector credit through various rules and regulations which ensures that banks give loans to small cultivators, small borrowers, etc. and not just to profit making business and traders.

(Any three points to be explained.)

59. How is money transferred from one bank account to another bank account? Explain with an example. [CBSE 2016] 

Ans.

Money can be transferred from one bank account to another in many ways like cheque payments, net banking, etc. For example - A shoe manufacturer, M. Salim, has to make a payment to the leather supplier and writes a cheque for a specific amount. This means that the shoe manufacturer instructs his bank to pay this amount to the leather supplier. The leather supplier takes this cheque, and deposits it in his own account in the bank. The money is transferred from one bank account to another bank account in a couple of days. The transaction is complete without any payment of cash.

Related Theory

At present, people prefer digital payments and net banking more than cheques, as everybody has access to mobile wallets which are linked to their bank accounts.

60.Why do banks and cooperative societies need to lend more? Explain.

Ans.

Banks and cooperative societies need to lend more.

(1)This would lead to higher incomes

(2)People could borrow cheaply for a variety of needs.

(3)They could grow crops and set up small-scale industries etc.

(4)Cheap and affordable credit is crucial for the country’s development

(5)To save and reduce the dependence on informal sources of credit

(6)It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans.

(Any three points to be explained.)

61. How is the concept of self help groups important for poor people ? Give your view point. [CBSE 2016] 

Ans.

Self help groups for poor people: 

(1)Help borrowers overcome the problem of lack of collateral.

(2)Get timely loans for a variety of purposes (releasing mortgaged land, buying seeds, fertilizers, cattle, etc.) and at a reasonable interest rate.

(3) Help women to become financially self-reliant.

(4)The regular meetings of the group provide a platform to its members to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc. 

Related Theory

Self help groups (SHG) are the organisations of rural people that help them come together in a group and help each other financially and domestically by saving regularly out of their earnings. There are a limited numbers of members in these groups and these groups are supported by the government in many ways.

62. “Credit activities of the informal sector should be discouraged.” Support the statement with arguments. [CBSE 2016] 

Ans.

Credit activities of the informal sector should be discouraged because

(1)This sector includes activities between money lenders, traders, employers, neighbours, relatives, etc. which are outside the control of the government. 

(2)There is no organisation to supervise the lending activities of the informal sector.

(3)There are no fixed rules and regulations for this sector to follow. 

(4)Informal lenders charge higher interest on the money they give to the borrowers as loan. Sometimes a substantial part of their hard-earned income is repaid as interest and the principal amount remains the same. Due to this, the borrowers always run with the risk of falling into a debt-trap. 

(5)Sometimes these lenders impose very tough and unreasonable conditions on the borrowers, and they find no other option than to comply.

(Any 3 of 5 points can be written to get full marks)

63. Explain any three reasons for the banks and cooperative societies to increase their lending facilities in rural areas.


64.Examine any three situations in which credit helps in the development of agriculturists.[CBSE Marking Scheme 2019

Ans.

Credit helps in the development of agriculturists: 

(1) The credit helps him to meet the ongoing expenses of production. 

(2) It helps in purchasing raw material and equipment.

(3) It helps in irrigation. 

(4) It helps in completing production on time. 

(5) It helps in storage of production. 

(6) It helps in increasing his earnings. 

(7) Any other relevant point. 

(Any three points to be examined. )

65. Explain any three loan activities of banks in India.  [CBSE Topper 2017] 

66. Why are formal sources of credit preferred over the informal source of credit? Give three reasons. [CBSE Marking Scheme 2018]

Ans.

Formal sources of credit preferred over Informal sources of credit because:

(1)Formal sources have low cost of borrowing

(2)Higher Income through cheap borrowing

(3)No exploitation and debt trap

(D)Any other relevant point

(All three points to be explained.)

67. Why is credit a crucial element in the economic development? [CBSE Marking Scheme 2018]

Ans:

Credit is a crucial element in economic development of a country because:

(i)It helps to meet the ongoing expenses of production(ii)It helps in increasing earnings

(iii)It helps in completing production in time.

(iv)Any other relevant point.

(All three points to be explained.)

68. Examine any three situations in which credit pushes the borrower into a debt trap. [CBSE Marking Scheme 2019]

Ans.

Credit and debt-trap: 

(1) Loans from informal sector could lead to debt trap. 

(2) Lack of planning results in debt. 

(3) Difficulty in repaying loans due to certain circumstances. 

69. Why is modern currency accepted as a medium of exchange without any use of its own ? Find out the reason. [CBSE Marking Scheme 2015]

Ans.

Modern currency is accepted as a medium of exchange without any use of its own because: 

(1)Modern currency is authorized by the government of a country. 

(2)In India, the Reserve Bank of India issues all currency notes on behalf of central Government. 

(3)No other individual or organization is allowed to issue currency. 

(4)The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. 

(5)No individual in India can legally refuse a payment made in Rupees. 

(6)Any other relevant point. 

(Any three points to be explained

70. “Deposits with the banks are beneficial to the depositors as well as to the nation”. Examine the statement.


71.Which organisation supervises the functioning of the banks in India and how? Explain. [NCERT]

Ans. The Reserve Bank of India supervises the functioning of the banks in India in the following ways: 

(1) The banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. 

(2)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.

(3)Banks have to submit information to the RBI periodically on how much they are lending, to whom, at what interest rate etc.

72. Modern forms of money include currency: paper notes and coins. unlike the things that were used as money earlier modern currency is not made of precious metals such as gold silver and copper and unlike green and cattle they are neither of everyday use the modern currency is without any use of its own. Why is modern currency accepted as a medium of exchange without any use of its own?

Ans.

Modern currency is accepted as a medium of exchange without any use of its own because:

(1)Modern currency is authorised by the government of the country because the Reserve Bank of India issues all currency notes on behalf of Central Government.

(2)No other individual or organisation apart from RBI is allowed to issue currency.

(3)Indian law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India

73. The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. For instance, workers who receive their salaries at the end of each month have extra cash at the beginning of the month. They deposit this extra cash with the banks by opening a bank account in their name. Why do people deposit their money in bank? 

Ans.

People deposit money in bank because:

(1)Depositing cash in banks is a wonderful way of keeping the money secure. Bank guarantee the security of your money from being robbed or looted.

(2)The surplus cash leftover after every month expenditure can be deposited in a bank to earn interest over the same. Hence, surplus cash when deposited brings home extra money off interest.

(3)Banks also provide the facility of depositing or withdrawing money at one’s own convenience. It is a good way of saving some money which would otherwise be spent in unnecessary things

                           LONG ANSWER (LA) Type Questions

74. ‘‘Bank plays an important role in the economic development of a country.” Support the statement with examples. [CBSE 2020] [CBSE Marking Scheme 2015]

 Ans.

‘‘Banks plays an important role in the economic development of the country’’. This statement can be supported by: 

(1) Loan is provided by banks to workers of the agriculture sector for all stages of crop production which results in the development of many households.

(2) Employment opportunities are created when banks provide loan to create fixed assets like buildings, industries and factories.

(3) Banks acts as a link between savers and investors. They mediate between those who have surplus money and those who are in need of it.

(4) One can easily rely and trust banks when it comes to keeping money safe. Banks provide a percentage of interest on the deposited money to the people which boosts their demands as well.

(5)Banks encourage entrepreneurs, native craftsmen and industrialists to work, produce and develop without worrying about capital or credit which in turn helps to make country economically sound. Banks help to distribute money allotted by various government schemes to beneficiaries in the remotest areas of the country.

75. Why is it necessary that banks and cooperatives increase their lending in rural areas? Explain. [CBSE 2017]

 Ans.

Banks and cooperatives should increase their lending in rural areas because:

(1)India largely depends on agriculture for export revenues. Farmers and agricultural workers in rural areas deserve special attention as they lack capital and resources to invest in their work. 

(2)Most of the people in rural areas are illiterate and informal money lenders exploit and cheat them for their benefit. People need a reliable source for credit.

(3)Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers.

(4)Banks and co-operative societies provide loans to the rural households at cheap rates and are backed by the government, which helps them boost their income. Incentives are also given to farmers for quick repayment.

(5)Most of the people in urban areas depend upon the rural people for their food and raw material requirements. For better production and to boost their income sources, easy credit is required.

(6)High rate of interest and repayment of such high amount to informal sources, make farmers fall in a debt trap. Formal sources are monitored and backed by the government. Help is given to them readily in dire times.

(Any 5 points can be written to get full marks)

76. “Credit sometimes pushes the borrower into a ‘situation from which recovery is very painful.” Support the statement with examples. 

Ans.

Yes, it is true that credit sometimes pushes the borrower into a situation from which recovery is very painful. It can be further understood through the following points : 

(1) Sudden calamities cannot be predicted. In rural areas, if crops fail due to any natural factors, then it becomes difficult for the borrower to repay the loan. For example, thunderstorms, hailstorms, etc. destroy crops and farmer’s source of income. Loan repayment becomes impossible for the farmer.

(2)In informal sectors, the rate of interest is not fixed and is usually very high. In case the credit is not repaid then the interest rates further mounts leading the borrower in a debt trap.

(3) There are cases when people have to sell their land and fixed assets to repay loan. 

(4)The borrower is often pushed into painful situation in case of high risk activities failure and specially when there is no support. 

(5)Some borrowers also commit suicide if they fail to repay the loan.

77. Review any three merits and any two demerits of ‘formal sector of credit’ in India. [CBSE 2017] 

Ans. Merits :

(1)Formal sector of credit helps to meet the working capital needs of production.

(2)It also helps in completing production on time.

(3)It offers loans at low rates of interest.

(4)It helps in increasing earnings by making more investment.(5)It helps in meeting on going expenses of production activities.

(Any 3 of 5 points can be written to get full marks)

Demerits:

(1)The formal sector of credit lacks credibility in rural areas.

(2)People face difficulty in obtaining loans.

(3)People don’t always have collateral or required documents.

(Any 2 of 3 points can be written to get full marks) 

78. Describe the vital and positive role of credit with examples. [CBSE 2016] 

Ans.

Credit plays a crucial role in a country’s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement. This leads to increase in the production, profits and employment. However, caution must be exercised in the case of loans from the informal sector, which includes high interest rates that may be more harmful than good. For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development. For example: A loan given to a  fresh post-graduate for setting up a business might contribute to employment generation and infrastructure development in the near future.

79. Self help groups help borrowers overcome the problem of the lack of collateral.” Examine the statement. [CBSE 2017] 

Ans.

Following are the ways through with self help groups (SHGs) help borrowers overcome the problem of the lack of collateral:

(1)Self-help group is able to solve collateral problem. Members can take small loans from the group itself to meet their needs without any collateral. 

(2)The Group charges interest on their loans but this is less than what the money lenders charge. 

(3)Most of the decisions regarding savings and loan activities are taken by the group members. The group decides as regards the loans to be granted the purpose amount, interest to be charged, repayment schedule, etc. The group is responsible for the repayment of the loan. Any case of non-repayment of loan by any one member is followed up seriously by other members in the group. 

(4)Because of these mentioned features, banks are willing to lend to poor women when organised in SHGs, keep as conclusion even though they have no collateral as such. Groups meet regularly and provide a platform to discuss and act on variety of social issues.

80. Describe any five informal sources of loans in India. [CBSE 2016] 

Ans.

The informal sources of loan in India are: 

(1)Moneylenders - They charge a high rate of interest, because of which many borrowers fall into a debt trap.

(2) Employers - Many people prefer taking loans from their boss or employer who cuts a fixed amount from their salary on monthly basis as repayment.

(3)Informal institutions - They give loans easily but are not authorised by the government. They charge a high rate of interest.

(4)Family and friends - They give loans easily but if a person is unable to repay then it causes distress in the relation.

(5)Big landlords - They charge a high rate of interest and also force small farmers who take loans from them to sell their produce at low prices to them, as they gave money to them when they needed.

81. What are the differences between formal and informal sources of credit? Mention five points. [NCERT] 


Ans.The difference between formal and informal sources of credit is as follows:

 

Formal Sources of CreditInformal Sources of Credit
These include banks and cooperatives.These sources in-clude moneylend-ers, friends, traders, employers, relatives, neighbours etc.
The RBI supervises the lending activities of formal sources of credit.There is no organisation to supervise lending activities of informal sources of credit.
These charge less interest on loans.These sources charges high interest on their lending activities.
These sources do not pressurize borrowers nor impose any unfair condition on them.These sources impose their own conditions which are at times very diffcultfor borrowers to fulfil.
The lending activities are concentrated around the social well being of each individual in the societymaking profit is the only aim of lending activities in informal sources of credit.

82. ‘Poor households are still dependent on informal sources of credit.’ Why is it so? Give reasons. [NCERT] 

Ans.

Poor households are still dependent on informal sources of credit due to the following reasons:

(1)Banks are not present everywhere in rural India. Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.

(2)Bank loans require proper documents and collateral which poor people in rural India cannot produce to the bank.

(3)Informal lenders such as moneylenders know the borrowers personally and hence are often willing to give a loan without collateral.

(4)The borrowers can approach the moneylenders even without repaying their previous loans.

(5)Banks do not sanction any loan to the borrowers if they have not cleared the previous loans. 

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