RBSE Solutions Class 10 Social Science Chapter 17 Currency and Financial System

Currency And Financial System Very Short Answer Questions

Question 1. What is meant by currency?
Answer: Currency refers to anything that is generally accepted by people and can be used to exchange for goods and services. It helps in making trade easier.
In simple words: Money is anything people agree to use to buy and sell things.

🎯 Exam Tip: When defining currency, always include both "general acceptability" and its function as a "medium of exchange" for a complete answer.

Question 2. State the meaning of exchange.
Answer: Exchange means giving goods and services and getting currency or other goods and services in return. It is how trade happens in an economy.
In simple words: Exchange is when you give something and get money (or other things) in return.

🎯 Exam Tip: Remember that exchange isn't just about money; it also covers the barter system where goods are traded directly.

Question 3. What do you mean by cheques?
Answer: A cheque is a written instruction given to a bank to pay a specific amount of money from one's account to the person named on it or to the person holding the cheque. It is a paper instrument used for banking transactions.
In simple words: A cheque is a written instruction telling your bank to pay money from your account to someone else.

🎯 Exam Tip: Emphasize that a cheque is a "written, unconditional order" addressed to a "banker" to pay a "certain sum" and is payable "on demand" or to the "bearer" to score full marks.

Question 4. What is the name of Indian currency?
Answer: The name of Indian currency is the Indian National Rupee. It is commonly identified by the symbol Rs.
In simple words: The money used in India is called the Indian Rupee.

🎯 Exam Tip: Always mention both the full name "Indian National Rupee" and its common abbreviation "Rs" when asked about Indian currency.

Question 5. What is the central bank of India?
Answer: The central bank of India is the Reserve Bank of India. It plays a crucial role in regulating the country's monetary system.
In simple words: The main bank that controls all other banks in India is the Reserve Bank of India.

🎯 Exam Tip: Clearly state "Reserve Bank of India" as the answer. You can also mention its role as "regulator of the banking system" for extra detail.

Question 6. What do you mean by saving?
Answer: Saving refers to the amount of income that is left over after all consumption expenses have been paid. It is the part of income not spent on current needs.
In simple words: Saving means keeping money aside that you didn't spend from what you earned.

🎯 Exam Tip: Define saving as "excess of income over consumption" and mention its importance for future use or investment.

Question 8. Which paper currency was demonetized in 2016 by Indian government?
Answer: In 2016, the Indian government demonetized paper notes of Rs 500 and Rs 1000. This meant these notes were no longer valid for transactions.
In simple words: In 2016, the Indian government made old Rs 500 and Rs 1000 notes invalid.

🎯 Exam Tip: When discussing demonetization, specify the year (2016) and the denominations (Rs 500 and Rs 1000 notes) affected.

Question 9. For which purpose credit is needed?
Answer: Credit is needed for various reasons, including both productive purposes (like starting a business or buying machinery) and non-productive purposes (like buying consumer goods or funding personal expenses). Access to credit helps individuals and businesses meet their financial needs.
In simple words: People need loans (credit) for many reasons, both for business and for personal use.

🎯 Exam Tip: Categorize credit needs into "productive" and "non-productive" purposes and provide a short example for each to show comprehensive understanding.

Question 10. Who controls for institutional credit?
Answer: In India, institutional credit is controlled by the government of India or the Reserve Bank of India. These bodies set policies and regulations for financial institutions to ensure stable credit flow.
In simple words: In India, big banks and financial groups that give loans are managed by the government or the central bank.

🎯 Exam Tip: Focus on the regulatory bodies: "Government of India" and "Reserve Bank of India" (RBI) as they are key controllers of institutional credit.

Question 11. Who are financial mediators?
Answer: Financial mediators are institutions or firms that act as a link between those who have savings (depositors) and those who need to borrow money (creditors). They collect savings from many individuals and then lend this money out for various purposes, like production and consumption. For example, banks are financial mediators.
In simple words: Financial mediators are like bridges between people who save money and people who need to borrow it. They collect savings and lend them out.

🎯 Exam Tip: Explain their dual role: "pooling savings from depositors" and "providing credit to creditors" to fully describe financial mediators.

Currency And Financial System Short Answer Type Questions

Question 1. What do you mean by barter system?
Answer: The barter system is a method where goods and services are directly exchanged for other goods and services without the use of money. This system was common before money became widely used, and it still exists in some remote areas today. For example, trading rice for wheat is a form of barter.
In simple words: The barter system is trading things directly without using money.

🎯 Exam Tip: Highlight "direct exchange of goods and services" and "absence of money" as key elements of the barter system definition.

Question 2. What were the drawbacks of Barter system?
Answer: The barter system faced many problems, which is why it did not become widespread as economies grew. Some main drawbacks included:
(i) Difficulty in finding a "double coincidence of wants," meaning two people had to want exactly what the other had.
(ii) Lack of a common unit to measure the value of different goods.
(iii) Problems with deferred payments, making it hard to pay for goods or services at a later date.
(iv) Difficulty in storing wealth, as many goods were perishable. These issues made the system inefficient for large and complex economies.
In simple words: Barter had problems like finding someone who wanted exactly what you had. It was hard to save value or pay later.

🎯 Exam Tip: List at least three major drawbacks, such as "double coincidence of wants," "lack of common measure of value," and "difficulty of deferred payments," to show a complete understanding.

Question 4. What do you mean by credit?
Answer: Credit refers to the total amount of money a bank or lender is willing to provide to borrowers. It allows individuals and businesses to purchase goods or services now and pay for them later, usually through fixed monthly installments over a set period. Credit helps fuel economic activity.
In simple words: Credit is the ability to borrow money from a bank. It lets people buy things now and pay for them in installments later.

🎯 Exam Tip: Define credit as the "total borrowing capacity" and explain its function: "buying goods/services now" and "paying later, often in installments."

Question 5. What are demand deposits?
Answer: Demand deposits are funds placed in a bank account that depositors can withdraw anytime they need the money, without prior notice. These typically include money in savings and current accounts. They are a convenient form of money for daily transactions.
In simple words: Demand deposits are money kept in a bank that you can take out whenever you want, like money in a savings account.

🎯 Exam Tip: The key feature of demand deposits is that they can be "demanded by the depositors when they require," making them highly liquid.

Question 6. What were the limitations of metal currency?
Answer: Metal currency, like coins, had several limitations. It was not easy to transfer large amounts because it was heavy. The process of minting new coins was also expensive. Additionally, it was difficult to quickly produce enough metal currency to meet a sudden rise in demand. This led to the need for paper money.
In simple words: Old metal coins had problems. They were heavy, costly to make, and it was hard to produce enough when more were needed.

🎯 Exam Tip: Mention the three main limitations: "difficulty in transfer," "high minting cost," and "inability to meet rising demand" to cover all aspects.

Question 7. What do you mean by financial organization? Explain with example.
Answer: A financial organization is an institution, which can be public or private, that gathers funds from the public or other institutions and then invests these funds in financial assets. Commercial banks are a prime example of financial organizations; they accept deposits from people and invest them in various financial assets like shares or mutual funds. They play a vital role in moving money in the economy.
In simple words: Financial organizations are companies that collect money from people and invest it. Banks are a common example; they take deposits and invest them.

🎯 Exam Tip: Define financial organizations as institutions that "collect funds" and "invest them in financial assets," then provide "commercial banks" as a clear example.

Question 8. What do you mean by local banker? State its three characteristics.
Answer: A local banker refers to private firms or individuals who operate like banks, especially in rural or unorganized sectors. They are important non-institutional sources of credit.
Some characteristics of local bankers are:
(i) They often give loans based on personal knowledge and trust, rather than strict documentation.
(ii) They provide quick access to funds, which is helpful for people who need money urgently.
(iii) They are not only the banker but often act as a friend and adviser to their clients due to close personal relationships.
In simple words: Local bankers are private people or small businesses that lend money, especially in areas where formal banks are less common.

🎯 Exam Tip: Focus on their "private" nature, their role as "non-institutional credit sources," and provide three distinct characteristics, such as "personal loans," "quick access to funds," and "advisory role."

Question 9. What do you mean by institutional sources of credit? Explain with the help of example.
Answer: Institutional sources of credit are organizations that are regulated and controlled by the government or the central bank of a country. These include commercial banks, cooperative banks, and regional rural banks. For example, all commercial banks in India operate under the Reserve Bank of India (RBI) and follow its monetary policies. They work not only for profit but also for the social betterment of society by providing loans at reasonable rates and promoting financial inclusion.
In simple words: Institutional credit means loans from big, official organizations like banks. These are managed by the government or the central bank, like RBI.

🎯 Exam Tip: Emphasize "government or central bank control" and mention "commercial banks" as a key example, also adding that they work for "social betterment."

Question 10. Explain money lender as a source of credit.
Answer: Money lenders are a part of non-institutional sources of credit. They use their own money to lend to people and typically do not accept deposits from the public. Money lenders usually offer personal loans at very high interest rates. People who cannot get loans from formal banks often go to money lenders. They usually lend money against some form of security (collateral), but sometimes they also lend based on the borrower's trustworthiness. While convenient, their high interest rates can be a burden.
In simple words: Money lenders are private people who give loans from their own money, not from deposits. They often charge high interest and are used by people who can't get bank loans.

🎯 Exam Tip: Highlight that money lenders are "non-institutional," use "own capital," charge "high interest rates," and are often a last resort for those without bank access.

Currency And Financial System Long Answer Type Question

Question 1. Explain the stages of development of currency.
Answer: The development of money has gone through several key stages:
1. Barter system: This was the earliest stage, existing before money was invented. Under this system, goods and services were directly exchanged for other goods and services. However, it had many problems, such as the need for a "double coincidence of wants" and difficulties in valuing goods or saving wealth. As economies grew, this system became inefficient and was gradually replaced.
2. Metal coins: After the barter system, metal pieces or things made of metal began to be used as currency. Later, these metal pieces were officially stamped with their value. However, carrying large amounts of metal coins was inconvenient, and the cost to produce them (minting) was very high. Also, it was hard to increase the supply quickly to meet demand. This led to a search for better forms of money. The evolution continued with paper money and modern digital forms to overcome these limitations.
In simple words: Money developed through stages. First, people bartered (traded goods directly), but it was difficult. Then, metal coins were used, but they were heavy and expensive to make.

🎯 Exam Tip: Discuss at least two major stages of money's development, like the "barter system" and "metal coins," explaining the characteristics and limitations of each.

Question 3. Explain in detail the function of commercial bank.
Answer: Commercial banks perform several vital functions in an economy:
1. Accepting deposits: Commercial banks accept various types of deposits from the public, including current accounts (for businesses), savings accounts (for individuals), and fixed deposit accounts (for longer-term savings). This function mobilizes public savings.
2. Advancing loans: Banks provide loans to producers for investment in businesses and to consumers for their spending needs. By offering these loans, banks contribute to increasing the supply of goods and services (through productive investment) and boosting demand (through consumer spending) in the economy.
3. Other functions: Besides deposits and loans, commercial banks offer many other services. These include collecting cheques and bills on behalf of customers, facilitating payments for things like insurance policies, providing locker facilities, gathering statistical data, and enabling the transfer of money between accounts and locations. These services make financial transactions easier for everyone.
In simple words: Commercial banks have three main jobs: they take money deposits from people, they give out loans for investments or spending, and they do other helpful things like collecting cheques or transferring money.

🎯 Exam Tip: Structure your answer by clearly separating the functions into "accepting deposits," "advancing loans," and "other ancillary services," providing a brief explanation for each.

Question 4. Explain the role of currency in economy.
Answer: Currency plays a multifaceted role in the economy, helping it grow and function smoothly:
1. It helps convert savings into investments, which then increases the production capacity of the economy. This process drives economic development.
2. It provides maximum satisfaction to consumers by allowing them to choose from a wide range of goods and services, thus leading to greater welfare in the economy.
3. It offers freedom to consumers to make choices between different goods and services, enhancing market efficiency.
4. It facilitates and boosts both domestic and international trade, making transactions across borders easier.
5. It assists the government in launching and funding social welfare schemes, improving public services.
6. It helps in the distribution of wealth among various factors of production (land, labor, capital, entrepreneurship) in a fair and efficient manner.
In simple words: Money helps the economy grow by turning savings into investments, making consumers happier with choices, boosting trade, and supporting government welfare plans.

🎯 Exam Tip: Focus on how currency facilitates economic activities like "investment," "consumer satisfaction," "trade," and "government schemes" to show its comprehensive role.

Question 5. Differentiate between Institutional and Non-institutional sources of credit.
Answer:

In simple words: Institutional credit is from official banks with lower interest and collateral, aiming for welfare. Non-institutional credit is from private lenders with higher interest and no collateral, aiming for profit.

🎯 Exam Tip: Use a clear table format for differentiation, ensuring at least three distinct points of comparison like "registration," "interest rate," and "collateral" for a comprehensive answer.

Currency And Financial System Additional Questions Solved

Question 6. What are self-help groups? How is it different from conventional sources of credit?
Answer: Self-Help Groups (SHGs) are typically small groups of 15-20 individuals, often rural women, who regularly pool their savings, usually ranging from Rs 25 to Rs 100 or more per member. Credit is provided to the group members at a low interest rate. After operating successfully for one or two years, SHGs can become eligible for bank loans. These loans are usually given with the aim of creating self-employment opportunities for members.
SHGs differ from conventional credit sources in several ways:
(i) Decisions regarding interest rates, loan duration, and amount are made by the group members themselves.
(ii) SHGs empower members for productive purposes and promote self-reliance.
(iii) They also provide a platform for members to discuss various social and economic issues like health, sanitation, education, and domestic violence. This informal structure makes them accessible where traditional banks might not reach.
In simple words: Self-Help Groups (SHGs) are small groups, often of rural women, who save money together and lend to each other at low interest. They help members become self-reliant and discuss community issues.

🎯 Exam Tip: Define SHGs by their size and saving method, then highlight their key differences from conventional credit, focusing on internal decision-making and broader social empowerment.

Question 7. Write a short note on local banking system.
Answer: The local banking system involves private firms or individuals who act as bankers, primarily serving as important non-institutional sources of credit in India. These local bankers are crucial, especially in areas where formal banking services are limited.
The functions of local bankers often include:
(i) Accepting deposits from local people.
(ii) Helping in the transfer of funds from one place to another.
(iii) Acting as not just bankers, but also as friends and advisors to their clients.
(iv) Providing loans to people, often keeping collateral (security) with them.
(v) Carrying out their own business activities alongside banking.
(vi) Handling transactions for small traders.
(vii) Lending money based on the type of business and personal information of the borrower. This system provides accessible financial services to many.
In simple words: Local bankers are private individuals or groups that work like banks, especially in villages. They take deposits, move money, give loans, and often act as advisors to their clients.

🎯 Exam Tip: Describe local bankers as "private firms/individuals" and "non-institutional credit sources," then list at least three of their distinct functions like "accepting deposits," "advisory role," and "lending based on personal information."

Question 1. How is the word 'money' originated?
Answer: The English word 'money' originated from the Latin word 'Moneta.' Moneta was the name of a goddess in ancient Rome, often associated with the Roman mint (a place where coins were made). The first mint in Rome was established near the temple of the goddess Moneta. Coins produced from this mint were then called 'money,' and over time, the term 'money' became used to refer to currency in general. This historical connection highlights the ancient roots of our financial terms.
In simple words: The word "money" comes from "Moneta," a goddess in ancient Rome, where the first coins were made near her temple. Those coins were called "money."

🎯 Exam Tip: Trace the word's origin back to "Latin 'Moneta'" and link it to the "Roman goddess" and the "first mint" to provide a complete explanation.

Question 3. Mention the types of deposits with commercial banks.
Answer: Commercial banks typically offer three main types of deposits:
(i) Current account deposits: These are usually for businesses and allow frequent transactions without interest.
(ii) Savings account deposits: These are for individuals, earn a small amount of interest, and allow limited withdrawals.
(iii) Fixed deposit accounts: In these, money is deposited for a fixed period, earning a higher interest rate, but it cannot be withdrawn before maturity without penalty. These various deposit options cater to different financial needs of customers.
In simple words: Commercial banks let people put money in three main ways: a current account for businesses, a savings account for everyday use, and a fixed deposit for saving for a longer time.

🎯 Exam Tip: Clearly list and briefly describe the three main deposit types: "current," "savings," and "fixed" accounts, highlighting their key features.

Question 4. State the merits and demerits of non institutional credit.
Answer: Non-institutional credit, often provided by money lenders or private individuals, has both advantages (merits) and disadvantages (demerits):
Merits of non-institutional credit are as follows:
(i) They often give credit without needing any collateral (security).
(ii) They provide credit without much documentation, making it easier for people who are illiterate or lack formal papers.
(iii) It is a source of instant credit, allowing quick access to funds when urgently needed.
Demerits of non-institutional credit are as follows:
(i) A very high rate of interest is typically charged by non-institutional sources of credit, making repayment difficult.
(ii) There is often no proper documentation or legal framework, which can lead to the exploitation of borrowers. This balance of ease versus risk is crucial to understand.
In simple words: Non-institutional loans are easy to get without papers or security, but they charge very high interest, and people can be cheated easily.

🎯 Exam Tip: Provide at least two merits (e.g., "no collateral," "less documentation," "instant credit") and two demerits (e.g., "high interest rates," "exploitation due to lack of documentation").

Question 5. What is investment?
Answer: Investment refers to any expenditure made with the aim of increasing the stock of gross capital formation in an economy. In simpler terms, it is spending money to create new assets or improve existing ones, which can generate future income or wealth. For example, building a new factory or buying new machinery are forms of investment.
In simple words: Investment means spending money in a way that helps create new assets or increases the overall wealth and production of a country.

🎯 Exam Tip: Define investment as "expenditure that increases the stock of gross capital formation," emphasizing its forward-looking nature for generating future wealth.

Question 6. Explain double coincidence of wants.
Answer: Double coincidence of wants is a situation required for a successful barter exchange, where two individuals must each possess goods or services that the other person wants, and both are willing to exchange them. For instance, if Person A has shoes and wants apples, they must find Person B who has apples and wants shoes. Finding such a perfect match is often very difficult and complicated in a barter system, which is why money was invented to simplify trade. The absence of this makes barter inefficient.
In simple words: Double coincidence of wants means two people both have something the other person wants, and they agree to trade. It's often hard to find such a perfect match.

🎯 Exam Tip: Clearly define it as a situation where "two individuals desire what the other possesses" and explain why this makes barter difficult, illustrating with an example.

Question 8. Explain the role of commercial bank in economic growth.
Answer: Commercial banks play a crucial role in promoting economic growth through several functions:
(i) Promoting savings: For economic growth, a high savings rate is essential. Commercial banks secure the public's savings and pay interest on them, which encourages a culture of saving in the economy.
(ii) Mobilizing capital: The savings collected from the public are then made available as capital for various producers and businesses in the economy. Without banks, these savings would remain idle with individual savers, unavailable for productive investments.
(iii) Efficient resource allocation: Banks effectively allocate financial resources. They direct funds towards areas of social welfare and also to sectors with high profit potential, ensuring optimal utilization of capital for overall economic development. These roles help circulate money and facilitate investments.
In simple words: Banks help the economy grow by encouraging people to save, lending that saved money to businesses, and making sure money goes to useful projects that help society and make profits.

🎯 Exam Tip: Focus on how banks "mobilize savings," "facilitate investment," and "allocate resources efficiently" as their primary contributions to economic growth.