CBSE-Class-10-Social-Science-Question-bank-Economics-Chapter-3-Money-and-Credit

Class 10^th Social Science- Money and Credit

MONEY AND CREDIT

NCERT TEXTBOOK QUESTIONS

Q.1. List the various sources of credit in Sonpur.

Ans. There are various sources of credit which are available in Sonpur. These are as follows :

(i) agricultural traders (ii) moneylenders (iii) commercial banks

(iv) cooperative societies (v) relative and friends etc.

Q.2. Look at a 10-rupee note. What is written on the top? Can you explain this?

Ans. Reserve Bank of India (Guaranteed by the Central Government) is written on a 10-rupee note.

This statement means that the Central government has authorised the Reserve Bank of India

to issue this note on behalf of the Central government.

Q.3. Write the functions of money.

Ans. Money acts as a common medium of exchange, a common measure of value, a standard of

deferred payments and a store of value.

Q.4. How do banks mediate between those who have surplus money and those who need

money?

Ans. Banks collect surplus money with people, as deposits. Banks use a major portion of these

deposits to extend loans. There is a huge demand for loans by businessmen and industrial

houses for various economic activities. Banks may use the deposits to meet the loan

requirements of the people. In this way, banks mediate between those who have surplus funds

(the depositors) and those who are in need of these funds (the borrowers) and banks charge

a higher interest rate on loans than what they offer on deposits.

Q.5. Modern currency is without any use of its own as a commodity. Why is it accepted as

money?

Ans. Modern forms of money include paper notes and coins. Modern currency is neither made of

precious metals such as gold, silver and copper nor consists of daily use commodities. The

modern currency is without any use of its own.

It is accepted as a medium of exchange because the currency is authorised by the government

of a country.

Q.6. Why are banks willing to lend to women organised in self-help groups (SHGs)?

Ans. Non-payment of loan by any member of the group is followed up seriously by other members

in a group. Because of this feature, banks are willing to lend to the poor women of SHGs, even

though they have no collateral as such.

Q.7. Why do you think that the share of formal sector credit is higher for the richer

households, compared to the poorer households?

Ans. The share of formal sector credit is higher for the richer households because they can deposit

the collaterals (security) such as land, building, livestock etc. while it is difficult for the poorer

households because of non-availability of such collaterals.

Q.8. Compare the terms of credit for the small farmer, the medium farmer and the landless

agricultural worker in Sonpur.

Ans.

Small farmer	Medium farmer	Lendless agricultural worker
Small farmers generally take loan either from moneylenders or from agricultural traders. The rate of interest is very high but neither collateral nor documentation is required for taking loan.	For medium farmers credit facilities are also available from banks at a very reasonable rate of interest. Repayment terms are flexible but in the process of getting credit, documentation and collateral is required.	Being a landless agricultural worker he remains idle several months in a year. To meet his contingent requirements (in case of illness, or festivals) he has to borrow credit form moneylender at a very high rate. These workers are exploited by these moneylenders.

Q.9. In India, about 80% of farmers are small farmers who need credit for cultivation.

(a) Why might banks be unwilling to lend to small farmers?

(b) What are the other sources from which the small farmers can borrow?

(d) Suggest some ways by which small farmers can get cheap credit.

Ans. (a) As the small farmers find it difficult to provide necessary documents / formalities and

collateral security required for loan, so these banks might be unwilling to lend to small

farmers.

(b) Informal sources of credit like moneylenders, employers, relatives, friends etc. are the

sources from which small farmers borrow the credit.

be unfavourable for the small farmers.

(d) Farmers can get cheap credit through cooperatives and SHGs

Questions in the Exercise

Q.1. Self-help groups also discuss the following social problems.

(a) Health (b) Nutrition (c) Domestic violence (d) All the above

Ans. (d)

Q.2. In SHG most of the decision regarding savings and loan activities are taken by

(a) Bank (b) Members

Ans. (b)

Q.3. Fill in the blanks :

(i) Majority of the credit needs of the _______________ households are met from informal

sources.

(ii) _____________ cost of borrowing increases 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.

Ans. (i) rural (ii) higher (iii) RBI (iv) deposits (v) collateral

Q.4. In situations with high risks, credit might create further problems for the borrower.

Explain.

Ans. The areas like farming, where high risks are involved, crop failure make loan repayment

impossible. To repay the loan amount, farmers have to sell a portion of their land. In such a

situation credit pushes the person into a debt-trap from which recovery is very painful.

Q.5. Why do lenders ask for collateral while lending?

Ans. Generally lenders ask for collateral, which is an asset that the borrower owns (such as land,

building, vehicle, livestock etc.) and uses this as a guarantee to a lender until the loan is repaid. If

borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payments.

Q.6. In what ways does the Reserve Bank of India supervise the functioning of banks? Why

is it necessary?

Ans. The Reserve Bank of India supervises the functioning of formal sources of loan. For example,

we have seen that the banks maintain a minimum cash balance out of the deposits they receive.

The RBI monitors that the banks actually maintain the cash balance. Similarly, the RBI sees

that the banks give loans not just to profit making businesses but also to small cultivators,

small scale industries etc.

Q.7. Manav needs a loan to set up a small business. On what basis will Manav decide whether

to borrow from a bank or a moneylender? Discuss.

Ans. If Manav has all the necessary documents showing his paying capacity and collateral security

then he will go in for a formal source of credit, i.e. bank. Bank will charge a reasonable rate

of interest. If he cannot provide necessary documents required for loan from the bank, then he

has to opt for an informal source of credit who sometimes lends at higher rate of interest and

uses unfair means to get back the money.

PREVIOUS YEARS’ QUESTIONS

Q.1. Which are two major sources of formal sector credit in India? Why do we need to expand

the formal sources of credit?

Ans. Formal sector credit in India includes loans from banks and cooperatives. RBI supervises their

functions of giving loans. Lower rate of interest is charged as compared to informal sources

of credit on these loans.

Need to expand formal sources of credit : Formal sector credit needs to be expanded in India

so as to save people and especially poor farmers and workers from exploitation of the informal

sector credit. Formal sector lends at a reasonable rate of interest which is very cheap. Formal

credit can fulfil various needs of the people through providing cheap and affordable credit.

MULTIPLE CHOICE QUESTIONS

Q.1. System of exchanging goods for goods is called :

(a) monetary system

(b) credit system

(d) exchange system

Ans. (c)

Q.2. Money

(a) eliminates double-coincidence of wants

(b) acts as a common measure of value

(d) all the above

Ans. (d)

Q.3. At present which form of money is increasingly used apart from paper money?

(a) Commodity money

(b) Metallic money

(d) All the above

Ans. (c)

Q.4. What are the modern forms of money?

(a) Currency

(b) Plastic money

Ans. (d)

Q.5. Terms of credit are with respect to :

(a) interest rate (b) collateral

Ans. (d)

Q.6. Credit or loan refers to an agreement

between :

(a) lender and borrower

(b) consumer and producer

(d) all the above

Ans. (c)

Q.7. The formal sector meets only about _______ of the credit needs of rural people :

(a) 25% (b) 52%

Ans. (b)

Q.8. The part of the total deposits which a bank keeps with itself in cash is

(a) zero

(b) a small proportion

(d) 100 percent

Ans. (b)

Q.9. An asset that the borrower uses as a repayment guarantee to a lender is termed as a :

(a) deposit (b) collateral

Ans. (b)

Q.10. Currency is issued in India by :

(a) commercial banks

(b) regional rural banks

(d) Reserve Bank of India

Ans. (d)

Q.11. Who supervises the credit activities of lenders in the informal sector?

(a) Central Bank of India

(b) Commercial banks

(d) None

Ans. (d)

Q.12. Rich households in urban areas avail cheap credit from

(a) formal sources (b) informal sources

Ans. (a)

Q.13. Productive loans by farmers are taken

(a) to buy seeds, fertilisers, implements

etc.

(b) for celebration of marriages

(d) none of the above

Ans. (a)

Q.14. Which of the following is not a source of rural credit?

(a) Regional rural banks

(b) Moneylenders

(d) Government

Ans. (d)

Q.15. Rate of interest charged by moneylenders as compared to that charged by banks is :

(a) lower (b) same

Ans. (d)

Q.16. Regional Rural Banks were set up in ________.

(a) 1969 (b) 1979

Ans. (a)

Q.17. A Self-Help Group usually has :

(a) 5-10 members (b) 10-15 members

Ans. (c)

Q.18. When was the KCC (Kisan Credit Card) scheme introduced?

(a) 1969 (b) 1979

Ans. (d)

Q.19. Which state accounts for maximum percentage of SHGs (self-help groups) in bank credit?

(a) Andhra Pradesh (b) Tamil Nadu

Ans. (a)

Q.20. _________ are widely accepted as a medium of exchange.

(a) Rupee notes (b) Gold coins

Ans. (a)

Q.21. Majority of the credit needs of the poor households are met from

(a) formal sources

(b) informal sources

(d) none of the above

Ans. (b)

Q.22. Who supervises the functioning of formal sources of loans?

(a) RBI (Reserve Bank of India)

(b) Central government

(d) None

Ans. (a)

Q.23. Which of the following is a major reason which prevents the poor from getting bank loans?

(a) Absence of collateral (security)

(b) Non-repayment of loans

(d) Documentation

Ans. (a)

Q.24. Who helps the borrowers to overcome the problem of lack of collateral?

(a) Self-help group (SHG)

(b) State government

(d) Moneylenders

Ans. (a)

Q.25. Formal sources of credit include

(a) banks (b) moneylenders

Ans. (a)

Q.26. Which of the following is not a modern form of money?

(a) Paper notes (b) Demand deposits

(d) None of the above

Ans. (c)

PREVIOUS YEARS’ QUESTIONS

Q.1. Which of the following is not an advantage of self-help group?

(a) Grant of timely loans

(b) Reasonable interests

(d) Does not help women to become self-reliant.

Ans. (d)

Q.2. What do you mean by collateral?

(a) It is the total sum of money with a person

(b) It is the things kept in the locker

(d) It is the security to a lender until the loan is repaid

Ans. (c)

Q.3. Identify the formal source of credit.

(a) Cooperative societies

(b) Moneylenders

(d) Landlords

Ans. (a)

Q.4. Which one of the following is not a modern form of money?

(a) Demand Deposits

(b) Paper currency

(d) Precious metals

Ans. (d)

Q.5. Which one of the following authorizes money as a medium of exchange?

(a) Reserve Bank of India

(b) Self Help Groups

(d) The President of India.

Ans. (a)

Q.6. Which of the following is not true regarding the in convenience of Barter Exchange ?

(a) Lack of double coincidence of want

(b) Absence of divisibility

(d) Availability of money as a medium of

exchange.

Ans. (d)

Q.7. Which one of the following is NOT an informal sector loans for poor rural household in India ?

(a) Commercial Banks

(b) Moneylenders

(d) Landlords

Ans. (a)

Q.8. Which one of the following is the important characteristic of modern form of currency?

(a) It is made from precious metal

(b) It is made from thing of everyday use

(d) It is authorized by the Government of the country

Ans. (d)

Q.9. Which one of the following constitutes money in modern day economy?

(a) Gold (b) Silver

Ans. (d)

Q.10. In a SHG most of the decisions regarding loan activities are taken by

(a) Banks (b) Member

(d) Cooperatives

Ans. (b)

Q.11. Which one of the following is a major reason that prevents the poor from getting loans from the banks?

(a) Lack of capital

(b) Not affordable due to high rate of interest

(d) Absence of mediators

Ans. (c)

Q.12. Which one of the following agencies issues currency notes on behalf of the government of India ?

(a) Ministry of Finance

(b) Reserve Bank of India

(d) World Bank

Ans. (c)

Q.13. Formal Sources of credit include :

(a) money lenders (b) co-operatives

(d) Finance companies

Ans. (b)

Q.14. Anything which is generally accepted by the people in exchange of goods and services is called :

(a) money (b) barter

Ans. (b)

Q.15. Terms of credit does not include :

(a) interest rate (b) collateral

Ans. (c)

Q.16. Banks do not give loans :

(a) to small farmers

(b) to marginal farmers

(d) without proper collateral and

documents

Ans. (d)

Q.17. The functioning of the formal sources of credit are supervised by :

(a) Government of India

(b) Reserve Bank of India

(d) State Bank of India

Ans. (b)

Q.18. Which one of the following is NOT a formal source of credit?

(a) Commercial Banks

(b) State Bank of India

(d) Co-operatives

Ans. (c)

Q.19. Which one of the following is not included in the terms of credit?

(a) Rate of Interest

(b) Mode of payment

(d) Collateral

Ans. (c)

Q.20. Which is not the main source of credit from the following for rural households in India ?

(a) Traders

(b) Relatives and friends

(d) Money landers

Ans. (a)

Q.21. Cheap and affordable credit results in which one of the following ?

(a) Slow economic growth

(b) Creating a debt trap

(d) Good economic growth

Ans. (d)

Q.22. Deposits in bank accounts withdrawn on demand are called :

(a) Fixed deposit

(b) Recurring deposit

(d) None of these

Ans. (c)

Q.23. Banks use the major portion of the deposit to :

(a) Keep reserve so that people may withdraw

(b) Meet their routine expenses

(d) Meet renovation of the bank

Ans. (c)

Q.24. When both parties agree to sell and buy each other’s commodities it is known as :

(a) measure of value

(b) double coincidence of wants

Ans. (b)

Q.25. Which among these is an essential feature of barter system ?

(a) Money can easily exchange any commodity

(b) It is based on double co-incidence of wants

(d) It acts as a measure and store of value

Ans. (b)

Q.26. Which one of the following is the main source of credit for the rich households?

(a) Informal

(b) Formal

(d) Neither Formal nor informal

Ans. (b)

Q.27. Why bank deposits are known as demand deposits ?

(a) Deposits with the banks

(b) People have the provision to withdraw the money when they require.

(d) People have the provision to withdraw the money only by cash.

Ans. (b)

Q.28. Which households take more loans from the formal sector ?

(a) Poor households and rich household.

(b) Well off households and households with few assets.

(d) Well off households and rich households.

Ans. (d)

Q.29. What portion of deposits are kept by the banks for their day to day transaction ?

(a) 10% (b) 15%

Ans. (b)

SHORT ANSWER TYPE QUESTIONS

Q.1. Can everyone in Sonpur get credit at cheap rate? Who are the people who can?

Ans. No, not everyone in Sonpur can get credit at cheap rates.

Generally some medium farmers, who are literate and have their own land for cultivation, get

credit at cheap rates from banks.

Q.2. Write two main functions of a commercial bank.

Ans. Accepting deposits from the individuals and providing loans to the entrepreneurs are the two

main functions of a commercial bank.

Q.3. Why should credit at reasonable rates be available for all?

Ans. If credit is available at reasonable rate, this would lead to higher income and many people

could then borrow for a variety of needs such as for growing crops, for setting small scale

industries, for business etc. Thus credit at reasonable rate will be helpful in the development

process of a country.

Q.4. What do you understand by “terms of credit”?

Ans. Interest rate, collateral and documentation requirement, and the mode of repayment together

are called the terms of credit.

Q.5. How is credit helpful for the country’s development?

Ans. Large numbers of transactions in our day to day activities involve credit in some form or the

other. Credit helps people to meet the ongoing expenses of production, complete production

on time and thereby increase their earnings. Hence, it plays a vital and positive role in a

country’s development.

Q.6. What is the basic idea behind the SHG’s for the poor? Explain in your words.

Ans. The basic idea behind the SHG’s for the poor is to provide credit facilities at a cheaper rate

and also without much documentation process.

An SHG has 15-20 members, usually from the neighborhood, who meet and save regularly

in the range of Rs 25 to Rs 100 or more. The amount which is collected by an SHG is utlised

to give loan to a member of the group. Now the group decides as regards the loans to be

granted, the purpose, amount, interest to be charged, and its repayment schedule.

Q.7. Why do we need to expand formal sources of credit in India?

Ans. Formal sources of credit in India provide loans to individuals at far cheaper rates than informal

sources of credit. This helps to increase their income and they are able to repay the principal

amount as well as interest by parting with a small part of their higher income. It will lead to

more production. This helps in the economic development of a country.

Q.8. What is the main source of income for banks?

Ans. The main source of income for banks is the difference between interest rate charged from

borrowers and what is paid to depositors. After keeping a portion of deposits as reserves banks

lend to people who demand money as loan and bank charges interest from them.

PREVIOUS YEARS’ QUESTIONS

Q.1. What do the banks do with the 'Public Deposits'? Describe their working mechanism.

Ans. Banks accept deposits from the Public and use the major portion of these deposits to

extend loans. There is a huge demand for loans for various economic activities. Banks

make use of these deposits to meet the loan requirement of the people and thereby earn

interest. This is, infact, the main source of income of the bank. In this way, bank acts as

a mediator between those who have surplus funds (the depositors) and those who are in

need of these funds (the borrowers). Banks charge a higher interest rate on loans than what

they offer on deposits.

Q.2. What are demand deposits? Describe any three salient features of demand deposits.

Ans. People with surplus money or extra amount deposit it in banks. The banks keep the money safe

and give an interest on it. The deposits can be drawn at any time on demand by the depositors.

That is why they are called 'demand deposits'.

(i) The demand deposits encashable by issuing cheques have the essential features of money.

(ii) They make it possible to directly settle payments without the use of cash.

(iii) Since demand drafts/cheques are widely accepted as a means of payment along with

currency, they constitute money in the modern economy.

Q.3. Mention any three points of distinction between formal sector loan and informal sector loan.

Ans.

Formal Sources of Credit Informal sources of Credit

1. Formal sources of credit are generally 1. Informal sources of credit are generally

provided by banks and cooperatives. provided by moneylenders, traders,

employers, relatives and friends.

2. Interest rate for repaying loans is lower. 2. Interest rate for repaying loans is costlier.

3. RBI supervises the functioning of formal 3. In informal sector no such organisation

sources of loan and also ensures that these is there to supervise the credit activities

facilities should also be given to small of lenders that they used to charge higher

cultivators and small borrowers. rate of interest on loans.

LONG ANSWER TYPE QUESTIONS

Q.1. Differentiate between Reserve Bank of India RBI and Commercial Bank.

Ans.

Reserve Bank of India Commercial Bank

1. It has the sole monopoly right to issue 1. No such thing is done by commercial bank.

currency notes.

2. It is the apex bank in the money market 2. It is a unit in the banking structure of the country.

of a country.

3. It does not deal with the public. 3. It directly deals with the public and business firms.

4. It acts as a banker to the government. 4. It has no such responsibility towards the state.

PREVIOUS YEARS’ QUESTIONS

Q.1. Explain any two features each of formal sector loans and informal sector loans.

Ans. Formal Sector Loans :

Formal sector loans include loans from banks and cooperatives. Features of formal sector

loans are :

(i) Formal sectors provide cheap and affordable loans and their rate of interest is monitered

by RBI.

(ii) Formal sector strictly follows the terms of credit which includes interest rate, collateral,

documentation and the mode of repayment.

Informal Sector Loans :

Informal sector loans include loans from moneylenders, traders, employers, relatives, friends

etc. Features for informal sector loans are :

(i) Their credit activities are not governed by any organisation, therefore they charge higher

rate of interest.

(ii) Informal sector loan providers know the borrowers personally, and hence they provide

loans on easy terms without collateral and documentation.

Q.2. What are the two main reasons for formal credit not being available to the rural

poor ? Why is there a need to expand rural credit ?

Ans. The two main reasons for formal credit not being available to rural poor are :

(i) Absence of collateral and documentation is the main reason which prevents rural poor from

getting bank loans.

(ii) The arrangements of informal sector loans are flexible in terms of timelines, procedural

requirements, interest rates etc. They are adjustable according to the needs and

convenience of the borrower.

There is a need to expand rural credit from the side of formal sector because :

(i) Informal sectors exploit rural poors by putting them in debt-traps.

(ii) Cheap and affordable credit for rural poors is important for the country’s overall

development.

Q.3. Why do the rural borrowers depend on the informal sector for credit? What steps can

be taken to encourage them to take loans from the formal sources ? Explain any two.

Ans. The rural borrowers depend on the informal sector for credit because :

(i) Absense of collateral and documentation with rural borrowers.

(ii) Flexible loans in term of timelines, interest rates, procedural requirements etc. are provided

to rural borrowers by informal sectors.

Steps that can be adopted to encourage them to take loans from the formal sources are :

(i) Awareness among rural borrowers against the exploitation of informal sectors. Need to

aware them regarding high rate of interest and debt traps made by such moneylenders.

(ii) Promotion to self-help groups. These groups collect their savings as per their own ability

to save. Members can take small loans from the groups to meet their requirements. If the

group is regular in savings for year or two, it can avail loan from the bank.

Q.4. ‘Cheap and affordable credit is crucial for the country’s development’. Explain the

statement with four points.

Why do we need to expand formal source of credit in India ? Explain any four reasons.

Ans. If the loans are cheap and affordable, this can lead to countries development in the following

ways :

(i) Cheap loans results in higher incomes and higher profits which can help in the expansion

of business.

(ii) More and more people can be benefitted by the loans in their businesses.

(iii) This can help in making more and more agricultural activities, small-scale industries etc.

Credit can be distributed more equally which helps in benefitting the poor’s by the help of

cheaper loans.

Q.5. Answers the following questions :

(a) Why are banks unwilling to lend loans to small farmers ?

(b) Besides banks, what are the other sources of credit from which the small farmers can

borrow.

(d) From where can small farmers get cheap loans ?

Ans. (a) Banks provide loans after collateral and documentation securities, which generally the

small farmers failed to comply with. Therefore, banks are unwilling to lend loans to small

farmers.

(b) There are several informal sources of credit like landlords, moneylenders, traders,

relatives and friends etc.

and unfavorable conditions exit farmers by the situation of multiple loans.

(d) Farmers can get cheap and safe loans from formal credit providers i.e., banks and cooperative

societies.

Q.6. Which are the two major sources of formal sector credit in India ? Why do we need to

expand formal sources of credit ?

Ans. The two major sources of formal sector credit in India are — commercial banks and

cooperative societies.

We need to expand formal sources of credit due to following reasons :

(a) Informal sources of credit exploit the poor’s resulting in putting them into debt-traps.

(b) Formal sources of credit are cheaper and thus they help in country’s development.

Q.7. What is meant by term of credit ? What does it include ?

Ans. Terms of credit are the requirements need to be satisfied for any credit arrangements. It

includes interest rate, collateral, documentation and mode of repayment. However the terms of

credit vary depending upon the nature of lender, borrower and loan.

Q.8. How does the Reserve Bank of India supervise the functioning of banks? Why is this

necessary?

Ans. Reserve Bank of India (RBI) supervised the banks in the following ways :

(i) It monitors the balance kept by banks for day-to-day transactions.

(ii) It checks that the banks give loans not just to profit-making businesses and traders but also

to small borrowers.

(iii) Periodically banks have to give details about lending, borrowers and interest rate to RBI.

It is necessary for securing public welfare. It avoids the bank to run the business with profit

motive only. It also keeps a check on interest rate of credit facilities provided by bank. RBI

makes sure that the loans from the banks are affordable and cheap.

Q.9. Describe four features of Self-Help Group (SHG).

Ans. The features of Self-Help Group (SHG) are :

(i) People form their personal groups for the purpose of savings and also lend money among

themselves.

(ii) Rate of interest is lower than informal service providers.

(iii) They can also avail loans from banks if their savings are regular.

(iv) Decisions regarding the savings and loan activities are taken by group members.

Q.11. What is double coincidence of want? How has money solved this problem?

Ans. Things exchanged for other things without the use of money is known as barter system. The

barter system laid the foundation of trade but trade was limited to the bounds of a village or

town. Hence, in a barter system when both the parties agree to sell and buy each other’s

commodities, it is known as double coincidence of wants. Whatever commodity a person

desires to sell is exactly what commodity the other wishes to buy. Without double coincidence

of wants exchange of goods is not possible. Therefore, it is an essential feature.

Money eliminates the need of double coincidence of wants. One can easily exchange their

goods in exchange of money and later on pay money for the desired commodities. Money acts

as a intermediate in the process of exchange, it is called as medium of exchange.

Q.12. How do banks mediate between those who have surplus money and those who need

money?

Ans. People keep their surplus money in banks for safety and interest which is provided by banks

to them. Banks again keep only a small proportion of their cash with themselves. These days

banks keep only 15% of the total deposits with them. Rest of the money banks keep to extend

loans. Banks charge interest on loans which is higher than the interest on deposits. This surplus

interest becomes the source of income for the banks. The 15% of cash deposits which banks

keep with themselves helps to carry on with, day-to-day transactions. Like every day, depositors

come to withdraw some of their cash.

Q.13. Differentiate between formal and informal sources of credit.

Q.11. Ans.

Formal Sources

Informal Sources

1. Formal sources of credit are loans from banks and cooperative societies.

2. Functioning of formal sources of credit is governed by Reserve Bank of India. Their interest rate and money lending details are periodically checked by RBI.

3. Rate of interest is common and fixed for all formal sources and borrowers.

4. Formal sources of credit needs to satisfy all the terms of credit before credit, activities.

5. They provide cheap and affordable credit for both urban and rural borrowers interest.

1. Informal sources of credit are money-

lenders, traders, employers, relatives, friends etc.

2. There is no organisation that manages or check the credit activities performed by informal sources.

3. Rate of interest depends upon the choice of moneylenders.

4. Informal sources of credit are flexible in terms of credit.

5. They generally charge higher rate of

Q.14. Mention four characteristics each of the formal and informal sources of credit in India.

Ans. Features of formal sources of credit are :

(a) Formal sources of credit are provided by banks and cooperative societies to the borrowers.

(b) Reserve Bank of India (RBI) governs the functioning of formal source of credit. RBI

periodically checks the interest rate and other details of these sources.

interest and mode of repayment.

(d) They provide cheap and affordable credits with common terms of credit for all.

Features of informal sources of credit are :

(a) Informal sources of credit are moneylenders, traders, employers, relatives, friends etc.

(b) There is no government or private organization that manages or check the credit activities

performed by informal sources.

borrowers.

(d) They generally charge higher rates of interest and exploit the borrowers for their own

benefits.

Q.15. Study the table given below and answer the questions that follow :

PEOPLE DEPENDING ON FORMAL SECTOR CREDIT IN URBAN AREAS

Category Percentage of people

Poor households 15%

Households with few assets 47%

Well-off households 72%

Rich households 90%

(i) Poor households share of formal credit in the urban areas is low as compared to that of

rich households. Why is it so ?

(ii) Mention two difficulties faced by poor households in taking loan from a formal sector.

Ans. (i) Poor households share of formal credit in urban areas is low as compared to that of rich

households due to the following reasons :

(a) Poor’s generally lack in collateral guarantors and do not have proper mode of

repayment.

(b) Informal sources of credit are generally flexible in timings, rate of interest, repayment

schedule etc.

Therefore, it is easier for poor’s to approach moneylenders as they know them

personally.

(ii) (a) Poor’s are not able to satisfy general terms of credit mostly collateral guarantees.

(b) Informal moneylenders know the boor borrowers personally and therefore flexible in

terms of repayment schedule, amount and interest etc.

Q.16. What are the modern forms of money currency in India? Why is it accepted as a medium

of exchange? How is it executed?

Ans. Modern forms of money include currency (paper notes) and coins.

It is accepted as a medium of exchange because the currency is authorized by the government

of India. No individual in India can legally refuse a payment made in rupee.

Any person holding money can easily exchange it with any commodity or service that he

desires. It acts as intermediate in the exchange process of different countries.

Q.17. Why are transactions made in money? Explain with suitable examples.

Ans. Money is accepted as a medium of exchange because the currency is authorized by the

government of India. In money transactions, money can be paid for any goods or services one

desires. For example : the producer of shoes may want wheat in exchange for his shoes. But

he may find it difficult to find a person who is also willing to exchange his wheat for shoes.

So simultaneous fulfilment of mutual wants is the first and foremost condition to buy and sell

the commodity. In money transaction one can buy a commodity whenever one wants it. One

does not have to wait for another person to agree to an exchange of goods.

Q.18. Study the diagram given below and answer the questions that follow :

(a) Which are the two major sources of credit for rural households in India?

(b) Which one of them is the most dominant source of credit for rural households?

Ans. (a) Moneylenders and cooperative societies.

(b) Moneylenders

(ii) Complicated paper work or documentation is not involved.

Q.19. What are the various sources of credit in rural areas? Which one of them is the most

convenient source of credit? Why is it most convenient? Give two reasons

Ans. Various sources of credit in rural areas are : (i) Agricultural traders, (ii) Moneylenders,

(iii) Commercial banks, (iv) Cooperative societies and (v) Relatives and friends.

The most convenient source of credit is a moneylender.

It is most convenient because of the following two reasons :

(i) There is no need of documentation process while taking loan from informal sources

(moneylenders).

(ii) No collateral is required. Collateral is an asset that the borrower owns (such as land,

building, livestock etc.) and uses this as a guarantee to the lender until the loan is repaid.

Money and Credit

Class 10th Social Science- Money and Credit

Q.11. Ans.

Class 10^th Social Science- Money and Credit