CBSE Class 10 Social Science Money and Credit Assignment Set 04

Question. Have you ever wondered why transactions are made in money?
Answer: 1) A person holding money can easily exchange it for any commodity or service that he or she might want. Thus everyone prefers to receive payments in money and then exchange the money for things that they want.

Question. What were the different forms of money in early times?
Answer:
1) 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.
2) Thereafter came the use of metallic coins — gold, silver, copper coins — a phase which continued well into the last century.

Question. What are the modern forms of money? why is it accepted as a medium of exchange?
Answer:
1) Modern forms of money include currency — paper notes and coins.
2) It is accepted as a medium of exchange because the currency is authorised by the government of the country.
3) In India, the Reserve Bank of India issues currency notes on behalf of the central government.

Question. What is collateral? what are
Answer: 1) 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.

Question. What are the various terms of collateral?
Answer: 1) Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.

Question. How does money eliminate the for double coincidence of wants?
Answer: 1) Money solves the problems of double coincidence of wants by acting as a medium of exchange.

Question. What do people do with this extra cash?
Answer:
1) They deposit it with the banks by opening a bank account in their name.
2) Banks accept the deposits and also pay an interest rate on the deposits.
3) In this way people’s money is safe with the banks and it earns an interest.
4) People also have the provision to withdraw the money as and when they require.

Question. How do we make payment by cheque?
Answer:
1) For payment through cheque, the payer who has an account with the bank, makes out a cheque for a specific amount.
2) A cheque is paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.

Question. What do the banks do with the deposits which they accept from the public?
Answer:
1) Banks keep only a small proportion of their deposits as cash with themselves. For example, banks in India these days hold about 15 per cent of their deposits as cash.
2) Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities.
3) Banks charge a higher interest rate on loans than what they offer on deposits.
4) The difference between what is charged from borrowers and what is paid to depositors is their main source of income

Question. How can credit lead to debt trap?
Answer:
1) Farmers usually take crop loans at the beginning of the season and repay the loan after harvest.
2) In Swapna’s case, the failure of the crop made loan repayment impossible.
3) She had to sell part of the land to repay the loan. Credit, instead of helping Swapna improve her earnings, left her worse off. This is an example of what is commonly called debt-trap.

Question. Why do lenders ask for collateral while lending?
Answer:
1) If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment. Property such as land titles, deposits with banks,
2) livestock are some common examples of collateral used for borrowing.

Question. How is formal sector loan different from informal sector loan?
Answer:
1) Among the formal are loans from banks and cooperatives.
2) Low rate of interest.
3) Income of the borrowers is more due to low interest rate.
4) The informal lenders include moneylenders, traders, employers, relatives and friends, etc.
5) The moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers.
6) Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers.

Question. Why should credit at reasonable rates be available for all?
Answer:
1) This would lead to higher incomes and many people could then borrow cheaply for a variety of needs. They could grow crops, do business, set up small-scale industries etc. They could set up new industries or trade in goods.
2) Cheap and affordable credit is crucial for the country’s development

Question. Examine the working of self-help groups
Answer:
1) 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.
2) If the SHG functions well for over a year, then it becomes eligible for loans from banks.
3) 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.

Question. Poor households are still dependent on informal sources of credit. Why is it so?
Answer:
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) Informal lenders such as moneylenders, on the other hand, know the borrowers personally and hence are often willing to give a loan without collateral.
4) The borrowers can, if necessary, approach the moneylenders even without repaying
5) bank loans require proper documents and collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans.

Question. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer:
1) The Reserve Bank of India monitors the amount of money that banks loan out, and also the amount of cash balance maintained by them.
2) It also ensures that banks give out loans not just to profiteering businesses but also to small cultivators, small scale industries and small borrowers
3) Periodically, banks are supposed to submit information to the RBI on the amounts lent, to whom and at what rates of interest.
4) This monitoring is necessary to ensure that equality is preserved in the financial sector, and that small industries are also given an outlet to grow.

Question. Why do we need to expand formal sources of credit in India?
Answer:
1) We need to expand formal sources of credit in India for two main reasons.
2) Firstly, to reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much.
3) Secondly, they will be able to provide loans to a larger group of people.

Question. Explain the concept of the double coincidence of wants with examples.
Answer:
1) When both the parties agree to sell & buy each other’s commodities, i.e., ‘Double coincidence of wants’.
2) A farmer needs to sell his wheat in exchange of clothes, so he has to find a person who would exchange wheat with clothes.

Question. What is Barter system? Why is double coincidence of wants essential in Barter system?
Answer:
1) In a Barter system goods are exchanged without the use of money.
2) Double coincidence of wants is essential because exchange of goods take place with the other person who needs them.