CBSE Class 10 Economics Money And Credit Worksheet Set F

ONE MARK QUESTIONS

Question. Who supervises the functioning of the formal sources of loans?
Answer : The functioning of the formal sources of loans is supervised by the Reserve Bank of India.

Question. ...................... issues currency notes on behalf of the central government.
Answer : R.B.I

Question. Why can one not refuse a payment made in rupees in India?
Answer : One cannot refuse a payment made in rupees in India because it is authorized by the government of the country.

Question. How does money elimin ate the need for double coincidence of wants?
Answer : Money acts as an intermediate in the exchange process and thus eliminates the need for double coincidence of wants.

Question. Why is the supervision of the functioning of the formal sources of loans necessary?
Answer : The supervision of the functioning of the formal sources of loans necessary to protect the borrowers from any kind of harassment as done in the informal sector.

Question. Highlight the inherent problem, in double coincidence of wants.
Answer : The inherent problem in double coincidence of wants is both the parties (seller and the buyer) have to agree to buy and sell each other’s commodities.

Question. Compare formal sector loans with informal sector loans regarding interest only.
Answer : The rate of interest charged by the formal sector is low whereas it is high in case of the informal sector.

Question. Majority of the credit needs of the ................. house holds are met from informal sources.
Answer : Poor

Question. ..................... is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the leader.
Answer : Collateral

Question. Give any two examples of informal sector of credit.
Answer : The two examples of informal sector of credit are moneylenders and friends.

Question. Prove with an argument that there is a great need to expand formal sources of credit in rural India.
Answer : There is a great need to expand formal sources of credit in rural India so that the people can be protected from the clutch ‘ of the moneylenders and improve their economic condition.

Question. Why are most of the poor households deprived from the formal sector of loans?
Answer : As the banks are not available everywhere in the rural areas and also due to its documentation process, most of the poor households are deprived from the formal sector of loAnswer :

Question. How does the use of money make it easier to exchange things? Give an example.
Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat- growing farmer who wants to buy shoes and needs to sell wheat.
Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then with that money he can bed to buy wheat.

Question. Banks charge a less interest rate on loans than what they offer on deposits.
Answer : False

Question. RBI monitors the banks in actually maintaing loan balance.
Answer : True

Question. In India currency is issued by RBI.
Answer : True

Question. The banks use the major part of deposit in printing currency.
Answer : False

THREE MARKS QUESTIONS

Question. “Banks are efficient medium of exchange.” Support the statement with arguments.
Answer : Yes, it is true to say that Banks are efficient medium of exchange.
People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.
Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.

Question. Explain with examples, how people are involved with the banks.
Answer : Three different people are involved in this process- depositors, bank and the borrowers.
Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Those who open an account and deposit money in it are called depositors.
Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.
This is how the banks mediate between the depositors and the borrowers i.e. those having surplus and those who are in need of money.

Question. “Deposits with the banks are beneficial to the depositors as well as to the nation.” Examine the statement.
Answer : Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers. This helps other people to run and expand their business which will increase the individual income and finally the country’s income.

Question. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
or
“Cheap and affordable credit is crucial for the country’s development.” Assess the statement.
Answer : Due to the following three reasons, cheap and affordable credit is important for the country’s development:
a. It will help people to take credit for variety of reasons.
b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest.
c. It will be easy for the people to repay the loan.

Question. How is money used in everyday life? Explain with examples.
Answer : Use of money in our daily life:
a. Money has become an essential part of life.
b. For any kind of exchange of goods and services, we need money.
c. In earlier times, when money was not in use, grains and cattle were used which was quite difficult as we had to face the problem of double coincidence of wants. But now for every transaction we are using money.

Question. Explain any three loan activities of banks in India.
Answer : The three loan activities of the banks are:
a. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.
b. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.
c. Rest of the amount is used to extend loan to the borrowers.

Question. “The credit activities of the informal sector should be discouraged.” Support the statement with arguments.
Answer : It is true to say that the credit activities of the informal sector should be discouraged. It is due to the following reasons:
a. They charge high rate of interest in comparison to that of formal sector.
b. Thus the cost of borrowing is high.
c. Due to high cost of borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development and ultimately will affect the country’s economic development.

Question. How can money be easily exchanged for goods and services? Give an example to explain.
Answer : If a shoe manufacturer wants to sell shoes and buy wheat, then first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat.
Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and that money can used to buy wheat.

Question. How do self-help groups help borrowers to overcome the problem of lack of collateral? Explain with an example.
Answer : This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. Saving per member varies from ? 25 to ? 100 or more, depending on the economic condition of the member.
When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest.
Loan matter is taken very seriously, as if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

Question. Mention any three points of distinction between formal sector loans and informal sector loAnswer :
Answer : The three points of distinction between formal sector loans and informal sector loans are:
a. Banks and cooperatives are called the formal sector credit whereas moneylenders, friends etc. are called the informal sector credit.
b. Formal sector credit charge less rate of interest whereas informal sector credit charges very high rate of interest.
c. Formal sector credit is easy to repay whereas the informal sector credit is difficult to repay.

Question. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reason.
Answer : Modern currency accepted as a medium of exchange without any use of its own due to the following reasons:
a. In the modern times, currency notes and coins are used as a medium of exchange.
b. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.
c. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question. Why is it necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas? Explain.
or
Why is there a great need to expand formal sector of credit in India? Explain any three reasons.
Answer : Due to the following reasons it is necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas:
a. There is limited availability of the formal sector credit sources in the rural areas.
b. The poor borrowers are bound to take loan from the moneylenders at high rate of interest.
c. Due to high rate of interest they are not able to repay the loan and caught in debt- trap.

Question. What is money? Why is modern money currency accepted as a medium of exchange?
Answer : Money is a medium of exchange used in settling the transactions.
a. Money acts as an intermediate in the exchange process and eliminates the need for double coincidence of wants. As money acts as intermediate, it is also called medium of exchange.
b. People have exchanged their goods and services since from the beginning. The medium of exchange kept on changing in different phases.
c. In the modem phase currency notes- paper notes and coins are used as a medium of exchange.
d. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.
e. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question. “Money has made transactions easy.” Justify.
or
How is money used as a medium of exchange? Explain with examples.
or
How does money solve the problem of double coincidence of wants? Explain with an example.
Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat- growing farmer who wants to buy shoes and needs to sell wheat. Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question. “Poor households still depend on informal source of credit.” Support the statement with examples.
or
“Most of the poor household still depend on the informal sector for loans, both in rural and urban areas of India.” Support the statement with three examples.
Answer : Yes, it is true that the poor households still depend on informal source of credit. It is due to the following reasons:
a. Banks are not present everywhere.
b. Collateral is required by the formal sector loan providers.
c. Many a time, the moneylenders know the borrowers personally and willing to pay the loan without any collateral.

FIVE MARKS QUESTIONS

Question. How are deposits with banks beneficial for the individual as well as for the nation? Explain with examples.
Answer : Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.
This helps people to run and expand their business which will increase the individual income and finally the country’s income.

Question. When does credit push the borrower into a debt-trap? Explain with the help of an example.
Answer : Sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times, caught into the situation of debt-trap. For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question. What are self-help groups? How are they emerging as an import ant source of credit? Explain.
or
‘Self-Help Groups’ help borrowers to overcome the problems of lack of collateral.” Examine the statement.
Answer : This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. Saving per member varies from ? 25 to ? 100 or more, depending on the economic condition of the member.
When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest.
Loan matter is taken very seriously as, if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

Question. Describe any four advantages of Self-Help Groups for the poor.
Answer : This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. Saving per member varies from ? 25 to ? 100 or more, depending on the economic condition of the member. The four advantages of Self-Help Groups for the poor are:
a. When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank.
b. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest.
c. Loan matter is taken very seriously, as if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.
d. Loan is provided to help them to create self- employment opportunities. SHG helps women in making them financially selfreliant and provides platform to discuss and act on a variety of social issues.

Question. Describe the vital and positive role of credit with examples.
or
How does credit plays a vital and positive role? Explain with suitable example.
Answer : Credit : Credit is an agreement between the lender and the borrower in which the borrower promises to pay the lender in the future.
Positive role of credit: Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question. What are the two categories of sources of credit? Mention four features of each.
Answer : The two categories of sources of credit are formal sector credit and informal sector credit.
Four features of formal sector credit are:
a. Formal sector credit sources includes banks and cooperatives.
b. Mostly people in the urban areas and the well-off households use it.
c. Formal sector credit need proper documents and collateral before lending.
d. They charge less rate of interest in comparison to that of informal sector. Thus the cost of borrowing is less.
Four features of informal sector credit are:
a. Informal sector credit sources includes moneylenders, friends, relatives, traders etc.
b. Mostly people in the rural areas and the poor households use it. Many a times informal sector don’t ask for documents and collateral as they know the borrowers personally.
c. They charge high rate of interest in comparison to that of formal sector. Thus the cost of borrowing is high.
d. Due to high cost of borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development.

Question. How can the formal sector loans be made beneficial for the poor farmers and workers? Suggest any five measures.
Answer : The formal sector loans can be made beneficial for the poor farmers and the workers by taking the following measures:
a. There should be availability of more and more banks in the rural areas.
b. Providing the loan to the poor at much cheaper rates.
c. There should be easy access to loan.
d. Depending on situation, farmers should be given credit without collateral.
e. There should be provision of instant loan to the farmers and the poor.

SOURCE BASED QUESTIONS

The reserve bank of india monitors the functions of formal sources of credit. The RBI monitors the banks in actually maintaining the required 15% of the cash balance. It ensures that the banks give loans not just to profit-making business and trader but also to small cultivatorn, small scale industries to small borrowers etc. banks have to submit information to the RBI on their credit activities like how much they are landing, to whom, at what interest rates, etc.

Question. Name the organization which monitors the functioning of formal sources of credit.
Answer : Reserve bank of india

Question. Who ensures that the banks give loans not just to profit-making businesses and traders.
Answer : Reserve bank of india