We have Provided the NCERT/CBSE Solutions chapter-wise for Class 10 Social Science Economics Chapter 3 Money and Credit with Answers by expert subject teacher for latest syllabus and examination. Students can take a free NCERT Solutions of Money and Credit. Each question has right answer Solved by Expert Teacher.
CBSE Solutions Class 10 Social Science Economics Money and Credit
Page No. 52
Excercises
Q1. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer: The situations with high risks, credit might create further problems for the borrower:
(i)The borrower had to pay interest on principal as well as on interest to lenders.
(ii)The lenders can go against the defaulT borrower in the court to recover his principal amount and interest thereupon.
(iii) Sometimes, the lender can sell the security or the assets as collateral pledged with the banks or co-operative society or any informal agency of credit.
Q2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer: Money solves the problem of double coincidence of wants by acting as a medium of exchange. Double coincidence of wants implies a situation where two parties agree to sell and buy each other’s commodities., i.e., what one party desires to sell is exactly what the other party wishes to buy.
Money does away with this tedious and complex situation by acting as a medium of exchange that can be used for one and all commodities. For example, if an ice-cream vendor wants a bicycle but the bicycle manufacturer wants clothes, and not ice-creams, then the vendor can use money to obtain a bicycle. He does need to adhere to the bicycle man’s needs because money acts as the common medium of exchange. Similarly, the bicycle manufacturer can then use the money to buy clothes.
Q3. How do banks mediate between those who have surplus money and those who need money?
Answer:
- People having surplus money, deposit it with the banks by opening a bank account in their name. Banks keep only a small proportion of their deposits as cash with themselves.
- They (banks) use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities.
- Banks fulfil people’s loan requirements by using these deposits. In this way, they mediate between those who have surplus money and those who are in need of this money.
Q4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Answer: On a ten rupee note, the statement written by the Governor of the Reserve Bank of India is that: I promise to pay the bearer the sum of ten rupees.
Q5. Why do we need to expand formal sources of credit in India?
Answer: We need to expand formal sources of credit in India because:
To reduce dependency on informal sources of credit because the latter charge high interest rates also, they do not benefit the borrower much.
- Affordable and cheap credit is essential for a country’s development.
- Co-operatives and banks need to increase their lending especially in rural areas.
Q6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer: The basic idea behind the SHGs for the poor is to provide them with a vista for self-help in financial areas. A self-help group is a small group comprising people in the rural areas who collect their savings, and loan these out to members on an interest rate lower than that charged by the informal sector. If the SHG functions well for over a year, then it becomes eligible for loans from banks. Such loans are then used for creating self-employment opportunities for the poor. Thus, they become economically upgraded and are not dependent on moneylenders anymore.
Q7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer: Bank loans require proper documents and collateral. People who do not apply for loan with proper documents and collateral are refused loans by the banks. Generally, the poor fall in this category and absence of collateral is one of the main reasons for not sanctioning loans to them.
Q8. In what ways does the Reserve Bank of India supervise the functions of Banks? Why is this necessary?
Answer: The Reserve Bank of India supervises the functions of banks in a number of ways:
- The commercial banks are required to hold part of their cash reserves with their RBI. RBI ensures that the banks maintain a minimum cash balance out of the deposits they receive.
- RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc.
- 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.
Q9. Analyse the role of credit for development.
Answer: Credit is one of the most major aspects of the development of a country. Affordable credit plays a very important role in the country’s development. People need loans for different reasons and to meet this requirement credit is very important. In India, a major part of the population is engaged in agricultural activities; credit plays a very crucial role in agricultural activities. People can borrow money and use modern farming methods to grow crops which are more reliable than the traditional methods of growing crops. Apart from this, there are small scale industries, business and various other sectors where credit can help people and ultimately result in the development of the country.
Q10. 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 to borrow from the bank or the moneylender on the following basis:
(i)Difference between rate of interest charged by formal and informal sources at the desired time.
(ii)Perusal upon terms of credit viz. paper work, security, collateral etc. made necessary by respective sources.
(iii)Mode of payment viz. size of instalment, frequency (monthly, quarterly, half-yearly or annually) or full repayment at the end of certain period i.e. two years, three years and so on. Apart from this his own capacity to repayment after thorough analysis of information collected.
Q11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(a) Why might banks be unwilling to lend to small farmers?
Answer: Bank loans require proper documents and collateral as security against loans. But most of the times 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.
(b) What are the other sources from which the small farmers can borrow?
Answer: Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives, SHGs etc.
(c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
Answer: The terms of credit can be unfavorable for the small farmer which can be explained by the following –
Ramu, a small farmer borrows from a local moneylender at a high rate of interest i.e. 3 per cent to grow rice. But the crop is hit by drought and it fails. As a result Ramu has to sell a part of land to repay the loan. Now his condition becomes worse than before.
(d) Suggest some ways by which small farmers can get cheap credit.
Answer: The small farmers can get cheap credit from the different sources like – Banks, Agricultural Cooperatives, and SHGs.
Q12. Fill in the blanks:
(i) Majority of the credit needs of the ____households are met from informal sources. (ii) __________costs of borrowing increase the debt-burden. (iii) __________issues currency notes on behalf of the Central Government. (iv) Banks charge a higher interest rate on loans than 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.
Answer: (i) poor
(ii) high
(iii) Reserve Bank of India
(iv) deposits
(v) Collateral
Q13. Choose the most appropriate answer.
(i) In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.
Answer: (b) Members.
(ii) Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.
Answer: (c) Employers.
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