Money and Credit - Class X

Question. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reasons.
Ans:

• The modern currency is not made up of precious metal such as gold silver or copper and unlike grain and cattle, they are neither everyday used. Thus it is without any use its own.
• But stile it is accepted as a medium of exchange. It is due to the fact that the currency is authorized by the govt. of the country.
• For example in India Reserve Bank of India issues currency notes on behalf of the central govt. As per Indian law no other individual or organisation is allowed to issue currency.

Question. How is the concept of self Help Group is important for poor people? Give your viewpoint.
Ans: The concept of self Help Groups is very important for poor people. Self-Help Groups are required because:

• They help the borrowers to overcome the problem of lack of collateral.
• They help the rural poor (specially women) to become financially self-reliant.
• They provide a platform to discuss issues such as health, nutrition and domestic violence.

Question. What are the functions of money? (Money and Credit)
Ans: (i) Medium of exchange
 (ii) store of value

Question. Why is there a need expand credit in rural areas? Suggest some ways to increase credit in rural areas. Mode of differed payment.

Ans: The reason below are important to show the need of expansion of the formal sector credit in the rural area.
The promotion of formal sector credit can save million poor household in rural areas from a very high – interest rate of moneylenders.
Cheap  and affordable credit can encourage many new businessmen or unemployment youth to set up new businesses or to increase the productivity of a company.Credit can be increased in the following ways:

• The expansion of commercial bank and cooperatives in the village
• The rate of interest should be low on loans and demand less collateral.

Question. What are the two categories of sources of credit? Mention four features of each.(LA) 5 Marks each

Ans: Two categories of sources of credit are:

• Formal sources of credit: Formal sectors include banks and cooperative societies. This sector provides loan at low interest. Formal source do formalities to grant loans. There is no explanations in formal sector. Formal sources give sufficient time to return loan.
• Informal sectors of credit: Informal sector includes money lenders, traders, employees, relatives etc. In this sector the rate of interest is very high. Less formality is required there. Informal sources exploit the lenders.

Question. “Cheap and affordable credit is crucial for the country is development”. Explain
Ans:

• Cheap and affordable credit means healthy income for the farmers and the traders.“Cheap and affordable credit is crucial for the country is development”. Explain
• This means that they can grow more crops or increase their business.
• Low interest rate can save the people from debt trap.
• Cheap credit can make lower the cost of production.
• Low interest credit is affordable for the poor of rural areas.

Question. What is credit? How does credit play a vital and positive role.Explain it with example.
Ans: Credit refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.Credit plays a vital role as:

• Credit helps people from all walks of life in setting up their business ,increase their income and support the   families.
• some people loan helps a lot in constructing their houses and get relief from monthly rent.
• To others it helps a lot in raising their standards.
• Example- government run a programme known as Pradhanmantri Swarojgar Yojana ,under which govt provide credits to unemployed people.

Question. What are the terms of credit ? Explain. (Money and Credit)
Ans; The terms of credit are-

• The rate of interest is an important aspect of any credit.
• The kind of collateral for taking loan
• The documentation requirement is also important
• The mode of repayment is also an  important term of credit.

Question. What are the functions of Bank?***  Or What role do you think banks play in the development of Economy?
Ans: Banks can do many things with deposits they accept form the public. These are discussed below

• The banks keep only a small part  of deposits as cash reserve ratio.
• In India , nowadays banks hold 15% of deposits as the cash  reserve.
• Deposits are taken as the cash reserve to meet the withdrawal demand of depositors who might come anytime to withdraw their money. Sometimes, a few depositors come to banks to withdraw money, so banks keep CRR to manage it.
• The remaining part of the deposits is given in the form of the loan to a large number of individual for different productive activities.
• The banks work as a mediator between those who have a surplus fund and those who are in need of money . The difference between the interest paid to both the depositors and the borrowers in the income of banks. Read more..
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