Class X - Money and Credit

NCERT TEXTBOOK QUESTIONS

Questions Within The Lesson

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 For medium farmers credit Being a landless agricultural loan either from moneylenders facilities are also available worker he remains idle several or from agricultural traders. The from banks at a very months in a year. To meet his rate of interest is very high but reasonable rate of interest. contingent requirements (in case neither collateral nor Repayment terms are of illness, or festivals) he has to

documentation is required for flexible but in the process of borrow credit  form moneylender taking loan. getting credit, documentation at a very high rate. These workers and collateral is required. 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?

(c) Explain with an example how the terms of credit can be unfavourable for the small farmers.

(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.

(c) If higher rate of interest is carried as terms of credit from informal sources, then it would 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 (c) Non-government organisations (d) Government.

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.

Q.8. 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.