Class 10 Economics Chapter 3 Money and Credit
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NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit
Class 10 Economics Chapter 3 Money and Credit
Q. 1. In situation with high risks , credit might create further problems for the borrower . Explain . ( Page no . 52 )
Ans . Of course , in one situation credit helps to increase earnings and person is better off than before . In other situation , where there is high risk , credit might create further problems for the borrower .
For example : A farmer takes credit for cultivation . Generally , the farmers take credit at the beginning of the season and repay after the harvest . But the failure of the crop makes loan repayment at loan impossible . They have to sell part of the land to repay the loan and their position become worse than before .
Whether credit would be useful or not depends on the risks in the situation and whether there is some support in case of loss .
Q. 2. How does money solve the problem of double coincidence of wants ? Explain with an example of your own . ( Page no . 52 )
Ans . Money as medium of exchange solves the barter’s problem of lack of double coincidence of wants . Money acts as a medium of exchange and is generally acceptable by all against their goods i.e. every person is ready to exchange his commodity with money and from that money he purchases what he wants and at the time of his needs i.e. due to money it is not compulsory for the people to buy at the same time when he sold his goods or services .
For example : A farmer exchanged his crops for money and from that money he purchased any goods or services which he needs . Now , it is not necessary for the farmer to find the person who sold him daily needs commodity against his crop .
Q. 3. How do bank mediate between those who have surplus money and those who need money ? ( Page no . 52 )
Ans . Bank is an institution which borrows and lends money . A bank receives deposit from those who want to keep the surplus money safely and also earn some interest .
Banks keep only a small proportion of their deposits as cash with themselves to meet the demand of the depositors who might come to withdraw money from the bank on any given day . Banks use the major portion of the deposits to extend loans to those who need money against the interest .
In this way , banks mediate between those who have surplus money and those who need money .
Q. 4. Look at a 10 rupee note . What is written on the top ? Can you explain this statement ? ( Page no . 52 )
Ans . Reserve Bank of India ‘ ‘ Guaranteed by the Central Government is written on top .
The statement means that the currency is authorised or guaranteed by the Central Government . That is , Indian law legalises the use of rupee , as a medium of payment .
Q. 5. Why do we need to expand formal sources of credit in India ? ( Page no . 52 ) [ CBSE SQP Marking Scheme , 2020 ]
Ans . ( i ) To save people from exploitation of informal sector .
( ii ) Formal sectors charge a low interest rate on loans .
( iii ) To save from debt trap .
( iv ) It provides cheap and affordable credit .
( v ) RBI also supervises the formal sector credit through various les 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 ) [ CBSE SQP Marking Scheme , 2020 ]
Detailed Answer :
There is a need to expand formal sources of credit in India due to following reasons :
( i ) Formal sources of credit charges low rate of interest in comparison to informal sources which encourage farmers and producers to expand their production with the help of loan .
( ii ) The terms and conditions of formal sources of credit are easy in comparison to informal sources .
( iii ) In formal sources repayment is in easy instalments , there is no such compulsion that the farmer should sell their crops or agricultural goods to the lender as in informal sources .
Q. 6. What is the basic idea behind the SHGs for the poor ? Explain in your own words . ( Page no . 52 )
Ans . The basic ideas behind the SHGs for the poor are :
( i ) To overcome the problem of lack of collateral .
( ii ) To protect the poor farmers or people from the exploitation of informal source .
SHGs are established not only to meet the financial requirement of the members of the group but also provide a platform to discuss and act on a variety of social issues such as health , nutrition , domestic violence etc.
Q. 7. What are the reasons why the banks might not be willing to lend to certain borrowers ? ( Page no . 52 )
Ans . Banks might not be willing to lend to certain borrowers due to the following reasons :
( i ) Banks require proper documents and collateral as security against loans . Thus , banks do not wish to give loan to those who have no collateral .
( ii ) Banks might not be willing to lend to those borrowers who have not repaid their previous loans .
( iii ) Bank might not be willing to borrow from those entrepreneurs who invest the money in risky projects .
( iv ) One of the principle objectives of a bank is to earn more profit to meet their administrative and other expenses like salary of the bank officials . Thus , it has to adopt judicious loan and investment policies which ensure fair and stable return on the funds .
Q. 8. In what ways does the Reserve Bank of India supervise the functioning of banks ? Why is this necessary ? ( Page no . 53 )
Ans . The RBI supervises the functioning of banks in the following ways :
( i ) It is compulsory for the commercial banks to maintain a minimum cash balance with RBI out of the deposits they receive .
( ii ) RBI monitors the functioning of banks so that banks give loans not just to profit making businesses and traders but also to small cultivators , small scale industries , small borrowers etc.
( iii ) Banks have to submit periodical report to RBI on how much they are lending to whom at what interest etc.
( iv ) Through its monetary policy RBI controls the credit supplied by the banks .
This is necessary to protect the interest of the borrowers especially small borrowers , small depositors , farmers etc.
Q.9 . Analyse the role of credit for development . ( Page no . 53 )
Ans . Credit plays a very crucial and positive role in the development . People need much funds to enhance their production activities which is beyond their own capacity of funds . For this , they depend on credit . It helps to the entrepreneurs to complete their order on time or the farmers to ready the crop on time . It also encourages the entrepreneurs to diversify their activities , establish new units . This results in increase in employment opportunities i.e. unemployed people get employment , their financial position improves as the income rises with the rise in production which results in increase in demand . i.e. more production required .
Thus credit helps in the total development .
Q. 10 . Manav needs a loan to set up a small business . On what basis . Manav will decide whether to borrow from the bank or the moneylender ? Discuss . ( Page no . 53 )
Ans . Manav needs a loan to set up a small business . On the basis of the following terms of credit he will decide whether to borrow from the bank or the moneylenders :
( i ) Interest rate : Which source carries low interest rate .
( ii ) Documentation and collateral requirement : have lower documentation Which source requirement .
( iii ) Mode of repayment : Easier mode of repayment . Thus , Manav will prefer to borrow from that terms and organisation which has easier . conditions of lending .
Q. 11 . In India , about 80 percent of farmers are small farmers , who need credit for cultivation .
( i ) Why might banks be unwilling to lend to small farmers ?
( ii ) What are the other sources from which the small farmers can borrow ?
( iii ) Explain with an example how the terms of credit can be unfavourable for the small farmer .
( iv ) Suggest some ways by which small farmers can get cheap credit . ( Page no . 53 )
Ans . ( i ) Bank requires proper documents and collateral as security against loan . But small farmers lack in documents and collateral . And also farmers do not repay loan on time due to uncertainty of crops . Thus , banks are unwilling to lend to small farmers .
( ii ) The small farmers can borrow from money lenders , traders , big landlords and cooperatives other than banks .
( iii ) Shamu , a small farmer borrows from the agricultural traders at a high rate of interest i.e. 37 % per month to grow rice . But the crop is hit by drought and the crop fails . As a result he has to sell his part of land to repay the loan .
Now , his situation becomes worse than before .
( iv ) The small farmer can get cheap credit from the following sources :
( a ) Banks
( b ) Agricultural co – operatives
( c ) Self Help Groups ( SHGs )
Q. 12 . Fill in the blanks : ( Page no . 53 )
( i ) Majority of the credit needs of the _____ households are met from informal sources .
( ii ) ________ cost of borrowing increases the tax burden .
( iii ) _______ issues currency notes on behalf of the Central Government .
( iv ) Bank charges a higher interest rate on loans that what they offer on ______ .
( v ) ________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender .
Ans . ( i ) Rural
( ii ) High
( iii ) Reserve Bank of India
( iv ) Deposits
( v ) Collateral
Q. 13. Choose the most appropriate answer : ( Page no . 53 )
( i ) In a SHG most of the decisions regarding savings and loan activities are taken by :
( a ) Bank
( b ) Members
( c ) Non – government organisation
Ans . ( b ) Members .
( ii ) Formal sources of credit do not include :
( a ) Banks
( b ) Co – operatives
( c ) Employers
Ans . ( iii ) Employers
Additional Project / Activity
Q.1 . The following table shows people in a variety of occupation in urban areas . What are the purpose for which the following people might need loans ?
Fill in the column .
Next , classify the people into two groups based on whom you think might get a bank loan and those who might not .
Q. 2. What is the criterion that you have used for classification ? ( Page no . 53 )
I have classified the people into two groups – one who get bank loan and second who cannot get bank loan in the form of following table .
Q. 1. How does the use of money make it easier to exchange things ? ( Let’s work these out , Page no . 40 )
Ans . The use of money makes it easier to exchange things in the following ways :
( i ) Money as a medium of exchange solves problem of lack of double coincidence .
( ii ) Money as a measure of value solves problem of absence of common measure .
( iii ) Money as a store of value solves problem of storing wealth .
( iv ) Money as a standard of deferred payment solves difficulty of borrowing and lending .
Q. 2 . Can you think of some examples of good / services being exchanged or wages being paid through barter ? ( Let’s work these out , Page no . 40 )
Ans . Yes , generally in rural areas payments are made to the agricultural labourers in terms of crops or food grains and sometimes they exchange their crops without cash .
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 am 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 banks account in a couple of days . The transaction is complete without any payment of cash .
Q. 3. M. Salim wants to withdraw ₹ 20,000 in cash for making payments . How would he write a cheque to withdraw money ? ( Let’s work these out , Page no . 42 )
Ans . M. Salim would write the concerned date in the given space . He would instruct the bank to pay ‘ self ‘ . He would also write ‘ Twenty Thousand Only ‘ further to rupees and figures ₹ 20,000 in the given box and then write the account number in the given space . He would also have to sign on the right lower side of the cheque .
Q. 4. Tick the correct answer : ( Let’s work these out , Page no . 42 )
After the transaction between Salim and Prem :
( i ) Salim’s balance in his bank account decreases and Prem’s increases .
( ii ) Salim’s balance in his bank account increases and Prem’s balance decreases .
( iii ) Salim’s balance in his bank account increases and Prem’s balance decreases .
Ans . ( ii ) Salim’s balance in his bank account decreases and Prem’s balance increases .
Q. 5 . Why are demand deposits considered as money ? ( Let’s work these out , Page no . 42 )
Ans . Demand deposits are considered as money as it is widely acceptable as a means of payment along with currency .
Q. 6. What do you think would happen if all the depositors went to ask for their money at the same time ? ( Page no . 42 )
Ans . Bank would not be able to give money to the depositors if they all went to ask for their money at the same time as bank keeps only a small proportions of their deposits as cash with themselves and use the major parts of the deposit to extend loans .
Q. 7. Megha has taken a loan of Rs . 5 lakhs from the bank to purchase a ‘ house ‘ . The annual interest rate on the loan is 12 per cent 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 .
Q. Fill the following details of Megha’s housing loan :
Q. 8 . Why do lenders ask for collateral while lending ? ( Let’s work these out , Page no . 45 )
Ans . Lenders ask for collateral while lending because if the borrower fails to repay the loan , the lenders have to obtain the payment by selling the asset used as collateral .
Q. 9. Given that a large number of people in our country are poor . Does it in any way affect their capacity to borrow ? ( Let’s work these out , Page no . 45 )
Ans . Yes , poverty affects their capacity to borrow . Lenders need security for lending money in the form of asset and poor people lack in providing this collateral security . Thus , their capacity to borrow is affected .
Q. 10. Fill in the blanks choosing the correct option from the brackets : ( Let’s work these out , Page no . 45 )
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 .
Ans . While taking a loan borrowers look for easy terms of credit . This means low interest rate , easy conditions for repayment less collateral and documentation requirements .
Q. 11. Fill the following Table : ( Let’s work these out , Page no . 43 )
[ Let’s work These out , Page no . 46 ]
Q. 12. Suppose that Salim continues to get orders from traders . What would be his position after 6 years ? ( Let’s work these out , Page no . 46 )
Ans . If Salim continues to get orders from traders he would earn good profit and after 6 years he would be financially sound i.e. he will become rich .
Q. 13. What are the reasons that make Swapna’s situation so risky ? Discuss factors pesticides ; role of moneylenders ; climate . ( Let’s work these out , Page no . 46 )
Ans . The Swapna’s situation became risky due to pest attack , high rate of interest charged by the moneylender , lack of monsoon , failure of crop etc. Pesticides : Pesticides control the pest attack .
Role of Moneylenders : Moneylenders charge high rate of interest and keep them in debt trap . i.e. moneylenders exploit the farmers and rural people .
Climate : Our agricultural sector mainly depends on the monsoon and major land is still unirrigated . The significant number of Indian farmers depend on rainfall which plays crucial role in getting good harvest .
Q. 14 . List the various sources of credit in Sonpur . ( Let’s work these out , Page no . 47 )
Ans . The various sources of credit in Sonpur are :
( i ) Village money lender
( ii ) Agricultural trader
( iii ) Banks
( iv ) Landowners
( v ) Cooperative societies
Q. 15. Underline the various uses of credit in Sonpur in the above passages . ( Let’s work these out , Page no . 47 )
Ans . There have been following uses of credit in Sonpur :
( i ) Farm inputs for cultivation
( ii ) To meet daily expenses
( iii ) Sudden illness
( iv ) Functions in the family
Q. 16. Compare the terms of credit for the small farmer , the medium farmer and the landless agricultural worker in Sonpur . ( Let’s work these out , Page no . 47 )
Q. 17. Why will Arun have a higher income from cultivation compared to Shyamlal ? ( Let’s work these out , Page no . 47 )
Ans . Arun will have a higher income from cultivation compared to Shyamlal because of the following reasons :
( i ) Arun has 7 acres of land whereas Shyamlal has only 1.5 acres of land for cultivation .
( ii ) Arun obtains the loan from bank at low interest i.e. 8.5 % per annum whereas Shyamlal obtains the loan at high interest rate i.e. 36 % .
( iii ) Arun has to repay the loan any time in the next three years while Shyamlal will have to repay the loan within 3-4 months as the crops are ready for harvest .
( iv ) Shyamlal has to promise to sell the crop to trader at low prices while there is no such condition with Arun .
Q. 18. Can everyone in Sonpur get credit at cheap rate ? Who are the people who can ? ( Let’s work these out , Page no . 47 )
Ans . No , everyone in Sonpur cannot get credit at cheap rate . Only those people are able to get credit at cheap rate who fulfill the collateral and documentation requirements .
Q. 19 . Tick the correct answer :
( i ) Over the years , Rama’s debt
( a ) Will rise
( b ) Will remain constant
( c ) Will decline ( Let’s work these out , Page no . 47 )
Ans . ( a ) Will rise
( ii ) Arun is one of the few people in Sonpur to take a bank loan because :
( a ) Other people in the village prefer to borrow form the moneylenders .
( b ) Banks demand collateral which everyone can not provide .
( c ) Interest rate on bank loan is same as the interest rate charged by the traders .
Ans . ( b ) Banks demand collateral which everyone cannot provide .
Q. 20. What are the differences between formal and informal sources of credit ? ( Let’s work these out , Page no . 50 )
Q. 21. Why should credit at reasonable rates be available for all ? ( Let’s work these out , Page no . 50 )
Ans . Of course , credit should be available at reasonable rate for all because cheap and affordable credit is crucial for the country’s development .
Cheap credit encourages people to take loan to meet their variety of needs . They could grow crops , do businesses , set up small scale industries . Thus cheap credit helps in increasing demand and also production and employment .
Q. 22. 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 ? ( Let’s work these out , Page no . 50 )
Ans . Yes , there should be a supervisor , such as the RBI , that looks into the loan activities of informal lenders . It is necessary to protect the interest of borrowers and depositors , to restrict the informal lenders to charge high rate of interest and to use unfair means to get their money back .
Its task would be quite difficult because :
( i ) The small borrowers are illiterate and ignorant .
( ii ) They have no assets to use as collateral .
( iii ) Informal lenders are not registered by the government .
( iv ) There is a personal relation between borrower and lender and it is difficult to apply the rules forcibly .
Q.23 . Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households ? ( Let’s work these out , Page no . 50 )
Ans . The share of formal sector credit is undoubtedly higher for the richer household compared to the poorer household because formal sector requires proper documents and collateral as security against loan . Poor people are illiterate , so they lack in providing such things which affect their capacity to borrow .
Secondly , they do not repay the loan on time . Thus , the formal sector is unwilling to lend to poor household .
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