CBSE Class 10 Economics Money And Credit VBQs

VERY SHORT ANSWER QUESTIONS

Question. The exchange of goods for goods is ____________.
Answer : Bills of exchange

Question. Currency is issued by ______________.
Answer : Currency is issued by RBI on behalf of Central Government

Question. National Sample Survey Organization is a __________.
Answer : An institution responsible to collect data on formal sector credit.

Question. Gold Mohar, a coin so named was brought in circulation by _________.
Answer : Akbar

Question. Why are transactions made in money ?
Answer: Transactions are made in money because a person holding money can easily exchange it for any commodity or service that he or she might want.

Question. What is the basic feature of double coincidence of wants ? In which system is it practiced ?
Answer: Basic feature is that both parties agree to sell and buy each other’s commodities. It is practiced in Barter system.

Question. What are the modem forms of money ? State any one.
Answer: Modern forms of money include currency- paper notes and coins.

Question. Why is currency accepted as a medium of exchange ?
Answer: Because it is authorised by the government of a country e.g., Indian Government.

Question. Which authority issues currency notes in India ?
Answer: In India, Reserve Bank of India issues currency notes on behalf of the central government.

Question. Why do people deposit money with the banks ?
Answer: People deposit surplus money with the banks because in this way their money is safe and it earns an interest too.

Question. Why are deposits with the banks called demand deposits ?
Answer: Deposits with the banks are called demand deposits because they can be withdrawn on demand.

Question. What is a cheque ?
Answer: A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made.

Question.How do the demand deposits share the essential features of money ?
Answer: The facility of cheques against demand deposits make it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

Question. Why no person can refuse to accept payments in rupee?
Answer: No one can refuse to accept payment in rupee because it is a legal currency authorized by the government.

Question. How much amount of the deposits is kept as cash by the banks and why?
Answer: Banks hold about 15 per cent of their deposits as cash to pay the depositors who might come to withdraw money from the bank on any given day.

Question. How do banks use the major portion of the deposits ?
Answer: Banks use the major portion (55%) of the deposits to extend loans to people for various economic activities.

Question. Which is the main source of income of the banks ?
Answer: The difference between what is charged from the borrowers and what is paid to depositors is the main source of income of the banks.

Question. What is credit ?
Answer: Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Question. In rural areas which is the main demand for credit ?
Answer: In rural areas, the main demand for credit is crop production and purchase of pesticides and fertilizers.

Question. What is debt-trap ?
Answer: When a borrower particularly in rural area fails to repay the loan due to the failure of the crop, he is unable to repay the loan and is left worse off. This situation is commonly called debt-trap. Credit in this case pushes the borrower into a situation from which recovery is very painful.

Question. What is a collateral ?
Answer: Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.

Question. What are “terms of credit” ?
Answer: Interest rate, collateral and documentation requirement, and the mode of repayment together comprise the terms of credit.

Question. Which are the major sources of cheap credit in rural areas ?
Answer: Banks and the cooperative societies.

Question. Who are the informal lenders ?
Answer: Moneylenders, traders, employers, relative and friends are the informal lenders.

Question. Which authority does supervise the functioning of formal sources of loans and how ?
Answer:
1. Reserve Bank of India.
2. The RBI monitors that the banks actually maintain the cash balance. It also sees that the banks give loans to all rich as well as poor.

Question. State any one difference between the formal lenders and the informal lenders.
Answer: Most of the informal lenders charge a much higher interest on loans.

Question. Who takes the important decisions in SHG regarding the savings and loan activities ?
Answer: Most of the important decisions regarding the savings and loan activities are taken by the group members.

Question. State any one advantage of Self-Help Groups.
Answer: The regular meetings of the group provide a platform to discuss and act on a variety of social issues as health, nutrition, domestic violence etc.

Question. Which Nobel Prize was awarded to Professor Muhammad Yunus and when ?
Answer: In 2006, Professor Muhammad Yunus of Bangladesh was given Nobel Prize for Peace.

Question. Which hank was founded by Prof. Muhammad Yunus and why ?
Answer: Grameen Bank of Bangladesh was started by Prof. Muhammad Yunus to meet the credit needs of the poor at reasonable rates.
 

LONG ANSWER TYPE QUESTIONS

Question. Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain.
Answer: Banks and cooperatives should extend their lending activities in rural areas because:
• Rural poor and farmers have to borrow money from moneylenders at a very high rate of interest. Therefore, the cost to the borrowing is very high.
• A large part of the earnings of borrower is used to repay the loans. Hence, they have less income.
• Sometimes, a higher rate of lending means that the amount to be repaid is more than the earnings of the borrower.
• To save the people from the clutches and exploitation by the moneylenders, it is necessary for the banks and co-operatives to extend their lending activities.
• It would lead to higher incomes and improve the condition of the rural poor.
• People can also start a business or set up a small scale industry

Question. Explain with an example how credit plays a vital and positive role for development.
Answer: Credit plays a vital and positive role in the following ways:
• It helps people from all walks of life in setting up their business, increase their income and provide support to their family needs.
• It makes it possible for the people to own or construct their own house and get relief from monthly rent.
• People often avail themselves of credit to purchase luxury items like vehicles, A.Cs, etc., which further raises their standard of living.
• It enables us to invest in human resource. People take credit for education, training, etc. which allows enrichment of human resource.
• For example, Salim availed credit facility to meet the working capital needs of production. It helped him to meet the ongoing expenses of production, complete production on time, thereby, increasing his income.

Question. How does the use of money make exchange of things easier? Explain with examples.
Answer: Money is used as a medium of exchange because it serves as a common medium through which people can carry out buying and selling. Use of money makes economic activities independent of each other. At the same time, it removes the inconvenience caused by the barter system.
For example, a person wants to sell sugar and buy wheat. He has to look for a person who wants sugar and has wheat to sell. In contrast, if in an economy, where money is used, the person who wants to sell sugar only has to look for a buyer for his sugar. The money which he will get can be used to purchase the wheat or any other commodity in the market. Since, money is used in the exchange process it is called a medium of exchange.
Let us take an example of a farmer who wants to sell wheat and wants to buy goat in lieu of that.
If he opts for barter system, he will have to search a person who may be interested in giving off his goat and in taking wheat. But finding such a person can be difficult and time-consuming. On the other hand, if the farmer sells wheat and takes money for that, he can easily go and purchase goat with that money.

Question. Describe the vital and positive role of credit with examples.
Answer: Credit plays a vital and positive role in the following ways:
• It helps people from all walks of life in setting up their business, increase their income and provide support to their family needs.
• It makes it possible for the people to own or construct their own house and get relief from monthly rent.
• People often avail themselves of credit to purchase luxury items like vehicles, A.Cs, etc., which further raises their standard of living.
• It enables us to invest in human resource. People take credit for education, training, etc. which allows enrichment of human resource.
• For example, Salim availed credit facility to meet the working capital needs of production. It helped him to meet the ongoing expenses of production, complete production on time, thereby, increasing his income.

Question. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
Answer: Cheap and affordable credit is crucial for a country’s development because:
• More lending would lead to higher incomes and encourage people to invest in agriculture, engage in business and set up small industries.
• Cheap credit will enable more investment. This leads to acceleration of economic activity.
• Cheap credit would also allow weaker sections of society to access formal sector of lending and get rid of from informal moneylenders.
• Affordable credit would also end the cycle of debt trap.
• Cheap and easy terms of credit would inspire better investment in technology and thus increase competition.

Question. What are Self-Help Groups? How are they emerging as an important source of credit?
Explain.
Answer: Self-Help Groups are a group of 15 to 20 poor villagers, especially women, who regularly pool money at regular intervals. When a member of the group is in need of money, he/she can get the loan from the group at a low rate of interest.
Self-Help Groups are emerging as an important source of credit because:
• They charge less interest on the loans than what the moneylenders charge.
• All decisions regarding savings and loans are taken by the members of the group.
• The members can take loans from the groups to meet their daily needs.
• If the group is regular in its savings, they can also take loan from the bank. Loan is sanctioned in the name of the group. The group is responsible for the repayment of loan.
• They help borrowers to overcome the problem of collateral.
• They have freed borrowers from the clutches of the moneylenders.

Question. Why is modern currency accepted as a medium of exchange without any use of its own?
Find out the reason.
Answer: Modern money has been accepted as a medium of exchange because:
• It is authorised by the government of a India.
• It is issued by the apex bank on behalf of the government.
• No other individual is allowed to issue currency.
• The law of the country legalises its use as a medium of payment and setting transactions.
• No one in a country can refuse payment made in the currency of that country.

Question. Why is it necessary for banks and cooperatives to extend their lending activities in rural areas? Explain.
Answer: Banks and cooperatives should extend their lending activities in rural areas because:
• Rural poor and farmers have to borrow money from moneylenders at a very high rate of interest. Therefore, the cost to the borrowing is very high.
• A large part of the earnings of borrower is used to repay the loans. Hence, they have less income.
• Sometimes, a higher rate of lending means that the amount to be repaid is more than the earnings of the borrower.
• To save the people from the clutches and exploitation by the moneylenders, it is necessary for the banks and co-operatives to extend their lending activities.
• It would lead to higher incomes and improve the condition of the rural poor.
• People can also start a business or set up a small scale industry

Question. Which government body supervises the functioning of formal sources of loans in India?
Explain its functioning.
Answer: Reserve Bank of India supervises the functioning of formal sources of loans in India.
• It issues currency notes on behalf of the central government.
• It issues guidelines for fixing rate of interest on deposits and lending by banks. ,,
• It ensures that banks should maintain a minimum cash balance out of the deposits they receive.
• It ensures that the banks should give loans not only to profit making businesses but also to poor people and small traders.
• Periodically, the banks have to submit a report to the RBI on how much they are lending, to whom and at what interest rate.

Question. What is money? Why is modern money currency accepted as a medium of exchange?
Answer: Money is anything which has common acceptability as a means of exchange, a measure and a store of value.
Modern money has been accepted as a medium of exchange because:
• It is authorised by the government of a India.
• It is issued by the apex bank on behalf of the government.
• No other individual is allowed to issue currency.
• The law of the country legalises its use as a medium of payment and setting transactions.
• No one in a country can refuse payment made in the currency of that country.

Question. Explain any four terms of credit with examples.
Answer: The four terms of credit are:
• Interest rate. The borrower has to pay a sum of money as interest along with the principal amount.
• Collateral. It is an asset that the borrower owns and uses this as a guarantee – to the lender untill the loan is repaid.
• Documentation. Proper documents of borrowing with all the terms and conditions must be submitted.
• Mode of repayment. The mode through which the borrower will repay the loan must be clearly mentioned. Long-term loans can be repaid in annual, half yearly or monthly installments.

Question. How are deposits with the banks beneficial for individual as well as for the nation? Explain with examples.
Answer: Deposits with the banks are beneficial to the depositors as well as to the nation in various ways.
Some of them are:
• They provide safe and secure deposits to a person’s money.
• They provide excellent saving and investment options and also help in the growth of the nation.
• They provide interests on the deposited money to the depositors.
• Money can be easily withdrawn from the banks as and when required by the depositors.
• hey provide easy loans on nominal rates that make it possible for the common man to build their own assets.

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 sources of credit
• Informal sources of credit
The features of formal sources of credit are:
• They charge low rate of interest and the mode of repayment is easy.
• They keep a collateral from the borrowers for granting loans.
• Reserve Bank of India supervises the functioning of formal sources of credit, (id) Urban households are largely depend on formal sources of credit.
• They include banks and cooperatives.
The features of informal sources of credit are:
• They charge higher rate of interest and the mode of repayment is very harsh.
• There is no need to keep a collateral in informal sources of credit.
• There is no organisation to supervise the functioning of informal sources of credit.
• Poor households are largely depend on informal sources of credit.
• They include moneylenders, relatives, friends etc.

Question. How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.
Answer: The formal sector loans can be made beneficial to poor farmers and workers in following ways:
• The process of providing loans should be made easier and accessible to them.
• Large number of banks and cooperatives should be opened in the rural areas.
• Banks and cooperatives should expand their facility of providing loans so as to decrease dependence on informal sector.
• Special focus should be paid on poor and small farmers along with small scale industries.
• Loan processing should be simple, faster and timely.

Question. Describe any four advantages of Self-Help Groups for the poor.
Answer: The advantages of Self-Help Groups for the poor are:
• They help the poor to become self-reliant in terms of savings and generating income as the decisions regarding savings are taken by the group members.
• They avail the facilities of loans from formal sources like banks at low rate of interest.
• They create self-employment opportunities by discussion within their group.
• They make it possible for the poor to avail timely finance without any collateral.

Question. How do banks play an important role in the economy of India? Explain
Answer: Banks play an important role in developing the economy of India by taking the following steps:
• Banks keep money of the people in safe custody to be used by the depositors in future.
• Banks also increase the savings of the depositors by paying interest on the money deposited.
• Banks mediate between people who have surplus and those who need money. This is done through granting loans. People avail themselves of these loan facilities to increase production and income.
• Banks, being the formal source of credit, give loans at a very low rate of interest at flexible terms and conditions.
• Special provisions are made through banks for the upliftment of agriculture and industry like waiving of loans of the farmers.

Question. “Whether credit will be useful or not, depends upon the situation.” Give two different examples in support of this statement
Answer: The two examples showing whether credit will be useful or not, depends upon the situation are:
• Chirag is a shoe manufacturer. During the festival season, he receives an order for 3,000 pair of shoes to be completed in a month. He employs two more workers for pasting and stitching. He takes an advance payment from a large trader for 1,000 pair of shoes. He asks the leather supplier to supply leather and payment would be made later. Chirag completes the order in a month, makes a good profit and repay all the money that he had borrowed.
• Sapna, a small farmer, grows groundnut in her three acres of land. She took a loan from the moneylender, hoping to repay the loan, once the crop is harvested. Being hit by the pest, the crop fails. Expensive pesticides did not make any difference. Sapna is unable to repay the moneylender and the other year, it becomes a bigger amount. Next year again, she took a loan for cultivation. It is not a bumber crop this year too. Sapna earns little, but it is not enough to repay the old loans. She had to sell a part of the land to repay the loan. She is caught in a debt.
This situation is called debt-trap.
• Hence, we can say that it depends on situation whether credit will be useful or not.

Long Answer Question:

1. On his 10th birthday, Arjun’s grandmother takes him to the bank to start a savings bank account for him.

Question

a. List the advantages of a demand deposit? 

b. List the values imparted by this gesture? 

Answer: Contextual

• Deposits are safe
• It earns interest
• Can be taken out when required
• Payments can be made through cheques

Answer: Value Based

• Creating awareness
• Responsibility
• Discipline
• Conservation
• Care and concern

2. Banks mediate between people who have surplus money and those who are in need of money.

a. How? 

b. What values should the bank keep in mind while extending loans? 

Answer: Contextual

• Banks keep 15% of the deposits to make payments and the rest is given out on loans.
• They charge higher interest on loans than on deposits.

Answer: Value Based

• Social and economic justice
• Care and concern for society
• Sensitivity to ones local needs

3. Raja takes of loan of 1 lakh from a bank for his production needs. He utilises the money efficiently, makes a profit, and repays the loan with interest on time as per the credit terms.

a. What is the role of credit here? 

b. What values does Raja exhibit as a creditor? 

Answer: Contextual

• Credit plays a positive role by helping him to increase his income

Answer: Value Based

• Commitment
• Hard work
• Dedication
• Sincerity
• Responsibility
• Following rules
• Punctuality

4. Co-operative Societies

      a. How are co-operative societies formed? 

      b. What values do these societies promote?

Answer: Contextual

• Co-operative societies are formed when people with common interest come together and pool their resources to help each other.

Answer: Value Based

• Team work
• Cooperation
• Self reliance
• Social welfare
• Sustainable development

5. Debt-Trap

a. What is a ‘Debt-Trap’? 

b. Which sector is more prone to it and why? 

c. What values should the bank keep in mind while setting up banks?

Answer: Contextual

• A ‘Debt-Trap’ is situation where a person is unable to repay his loans and falls into a trap from which recovery is difficult.
• Agricultural sector is more prone to Debt-Traps as it is subject to more risks like crop failure, exploitation by money lender.

Answer: Value Based

• Create awareness
• Promote social justice
• Social responsibility
• Empathy
• Sensitivity towards local needs
• Care and concern for society

6. Self-Help Groups (SHGs)

     a. How are SHGs a boom for the rural sector? 

     b. What are the values promoted by SHGs? 

Answer: Contextual

• They are able to get credit at reasonable rates
• They are no longer dependant on moneylenders

Answer: Value Based

• Self reliance
• Independence
• Team work
• Co-operation Social welfare
• Social welfare
• Care & concern
• Sensitivity to the needs of the members
• Social responsibilities

7. Prof. Muhammed Yunus, the founder of the Grameen Bank in Bangladesh, won the Nobel Peace Prize. 3marks

a. What were the values he stood for? 2marks

Answer: Value Based

• Care & concern for the deprived sector
• Social and economic justice
• Social responsibility
• Sensitivity to local needs
• Right to equal opportunities 
• Create awareness

Globalisation

Long Answer Question:

8. Trade Barriers

    a. Why did the Government impose trade barriers soon after independence? 

    b. What values did the Government have in mind while imposing them?

Answer: Contextual

• The government wanted to protect the home industries from foreign competition.

Answer: Value Based

• Empathy towards local producers
• Socio-economic welfare
• Equal opportunities
• Care & concern

9. WTO

    a. What is the aim of the WTO and why was it criticised? 

    b. What are the values to be kept in mind while making international trade regulations?

Answer: Contextual

• WTO aims to liberalise international trade. It was criticized because the developed countries unfairly retained trade barriers while WTO rules forced the developing countries to remove trade barriers.

Answer: Value Based

• Global co-operation
• Understanding
• Integration
• Fair play
• Caring
• Sharing
• Equal opportunities 
• Ethical trade practices

10. Government had introduced flexibility in labour laws to attract foreign investment.

a. How has this adversely affected the working class? 

b. What values should be kept in mind when making labour laws flexible? 

Answer: Contextual

• The government allows companies to hire workers flexibly for short periods when there is intense pressure of work.
• ·They are employed only on a temporary basis, have to put in long working hours, and they resemble the unorganized sector.

Answer: Value Based

• Labour laws should promote good working conditions
• Socio-economic justice
• Care & concern
• Equal opportunities
• ·Sensitivity to local needs
• Empathy

11. Fair Globalisation

a. What is meant by Fair Globalisation? 

b. What values should be kept in mind while framing laws to make them fair? 

Answer: Contextual

• Fair Globalisation means it should benefit all sections of society and not just the rich and skilled.
• Social responsibility
• Socio-economic justice
• Care & concern
• ·Equal opportunities
• Sensitivity to local needs
• Empathy towards local producers
• Ethical trade practices

Question. What is meaning of Barter system ? Why is double coincidence of wants is an essential feature of a Barter system ?
Answer:
• A system in which goods are directly exchanged without the use of money is called barter system.
• Double coincidence of wants means when both the parties – seller and purchaser – agree to sell and buy each other’s commodities. It implies that what a person desires to sell is exactly what the other wishes to buy. No money is used in such an arrangement. Therefore it is an essential feature of barter system.

Question. Why is modern currency accepted as a medium of exchange without any use of its own ? Find out the reason.
Answer: Modern currency is accepted as a medium of exchange without any use of its own due to reasons as mentioned below :
• In India, the Reserve Bank of India issues currency notes on behalf of the central government.
• As per Indian law, no other individual or organisation is allowed to issue currency.
• The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.
• No individual in India can legally refuse a payment made in rupees. Hence the rupee is widely accepted as a medium of exchange.

Question. What is a collateral ? What happens if a borrower fails to repay the loan ? Give some examples of collateral.
Answer:
1. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.
2. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
3. Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing.

Question. How is money transferred from one bank to another bank account ?
Or
Describe how cheque payments are made and realised.
Answer: If a person has to make a payment, he issues a cheque for a specific amount in his name. The bank will deposit the cheque in their own account in the bank. Thereafter, the money is transferred from one bank to another bank account in a couple of days. Thus, transaction takes place without any payment of cash from one bank account to another bank account.

Question. Explain with examples, how people are involved with the banks.
Answer:
1. Banks help people to save their money and keep their money in safe custody of the bank.
Banks accept deposits from the public and also help people to earn interest on their deposits.
2. People can withdraw the money deposited with the bank at the time of their need. As the money can be withdrawn on demand, these are called demand deposits.
3. Banks also grant loans to people for a variety of purposes. In times of need individuals, business houses and industries can borrow money from the banks.

Question. How is money used in everyday life? Explain with examples.
Answer: 1. Money plays a central role in our daily life. It is used as a medium of exchange to carry out transactions.
2. Money buys us food, clothing, shelter and other basic necessities of life.
3. Money provides us social security. It is needed to procure services like transport, education, healthcare, entertainment, recreation, and so on. Money facilitates business and trade and is the basis of the working of an economy.

Question. Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain.
Answer: Banks and Cooperatives can help people in obtaining cheap and affordable loans. This will help people to grow crops, do business, set up small-scale industries or trade in goods and also help indirectly in the country’s development. They should do so, so that relatively poor people do not have to depend on informal sources of credit (money-lenders).

OBJECTIVE TYPE QUESTIONS

Question. Which one of the following is a formal source of credit?
(a) Traders
(b) Cooperative societies
(c) Moneylenders
(d) Friends and relatives
Answer : B

Question. Which one of the following is the appropriate meaning of collateral?
(a) It is the sum total of money borrowed from banks.
(b) The amount borrowed from friends.
(c) It is an asset of the borrower used as guarantee to a lender.
(d) The amount invested in a business.
Answer : C

Question. Which one of the following is the newer way of providing loans to the rural poor, particularly women?
(a) Cooperative Banks
(b) Grameen Banks
(c) Self-Help Groups
(d) Moneylenders
Answer : C

Question. Double coincidence of wants means ____________.
(a) What a person desires to sell is exactly what the other person wishes to buy.
(b) What a person desires to sell is exactly what the other person also wishes to sell.
(c) What a person desires to buy is exactly what the other person also wishes to buy.
(d) None of the above.
Answer : A

Question. Banks use the major portion of the deposits to
(a) Extend loans
(b) Invest in infrastructure
(c) Deposit in foreign banks
(d) None of the above
Answer : A

Question. Which of the following statements are correct?
(a) Members of a cooperative pool their resources for cooperation in certain areas.
(b) Besides banks, the other major source of cheap credit in rural areas is the cooperative societies.
(c) There are several types of cooperatives possible such as farmers’ cooperatives, weavers cooperatives, industrial workers cooperatives.
(d) All of the above statements are true.
Answer : D

Question. Which of the following statements is false
(a) There is no organization which supervises the credit activities of lenders in the informal sector.
(b) RBI stops the money lenders from using unfair means to get their money back.
(c) Compared to the formal lenders, most of the informal lenders charges much lesser interest on loans
(d) All of the above
Answer : D

Question. Name the system in which the double coincidence of wants is an essential feature.
(a) Barter system
(b) Money economy
(c) Global economy
(d) None of these
Answer : A

Question. Which of the following could lead to a debt trap?
(a) The high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.
(b) Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
(c) The high interest rate for borrowing can mean that the amount to be repaid is lesser than the income of the borrower.
(d) both (a) and (b)
Answer : D

Question. Since money acts as an intermediate in the exchange process, it is called
(a) Medium of trade
(b) Medium of Exchange
(c) Medium of Business
(d) Medium of transaction
Answer : B

Question. The modern currency is without any use of its own, then why is it accepted as a medium of exchange?
(a) Because it is convenient
(b) It has digital and manual system
(c) It can be used in foreign exchange
(d) Is authorized by the government of the country
Answer : D

Question. People also have the provision to withdraw the money as and when they require the deposits in the bank accounts to be withdrawn, what are these deposits called?
(a) Fixed deposits
(b) Savings
(c) Demand deposits
(d) Demand drafts
Answer : C

Question. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of………
(a) Deposit slip
(b) Cash
(c) Moneylender
(d) Other funds
Answer : B

Question. M. Salim wants to withdraw Rs 20,000 in cash for making payments to Prem after Prem receives the money, he deposits it in his own account? What is the result?
(a) Salim’s balance in his bank account increases and Prem’s balance increases.
(b) Salim’s balance in his bank account decreases and Prem’s balance increases.
(c) Salim’s balance in his bank account increases and Prem’s balance decreases
(d) None of the above
Answer : B

Question. .…………refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
(a) Debit
(b) Cash transaction
(c) Credit
(d) Trade
Answer : C

CASE/SOURCE BASED QUESTIONS

1. Read the paragraphs given below and answer the questions that follows

Festival Season

It is festival season two months from now and the shoe manufacturer, Salim, has received an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month time. To complete production on time, Salim has to hire a few more workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses, Salim obtains loans from two sources. First, he asks the leather supplier to supply leather now and promises to pay him later. Second, he obtains loan in cash from the large trader as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. At the end of the month, Salim is able to deliver the order, make a good profit, and repay the money that he had borrowe(d) Swapna’s Problem Swapna, a small farmer, grows groundnut on her three acres of lan(d) She takes a loan from the moneylender to meet the expenses of cultivation, hoping that her harvest would help repay the loan. Midway through the season the crop is hit by pests and the crop fails. Though Swapna sprays her crops with expensive pesticides, it makes little difference. She is unable to repay the moneylender and the debt grows over the year into a large amount. Next year, Swapna takes a fresh loan for cultivation. It is a normal crop this year. But the earnings are not enough to cover the old loan. She is caught in debt. She has to sell a part of the land to pay off the debt.

Question. In whose case credit played a vital and positive role?
(a) Swapna
(b) Salim
(c) Both
(d) None of the above
Answer : B

Question. In Swapna’s case what made loan repayment impossible?
(a) Crop failure
(b) Spraying of expensive pesticides
(c) Both a and b
(d) Only b
Answer : C

Question. Which one of the following is not a source of credit mentioned in paragraphs?
(a) Trader
(b) Moneylender
(c) Bank
(d) Leather supplier
Answer : C

Question. Who was not caught into debt trap?
(a) Salim
(b) Swapna
(c) Moneylender
(d) Leather supplier
Answer : A

2. Read the paragraph given below and answer the questions that follows

Variety of Credit Arrangements Shyamal tells us that every season he needs loans for cultivation on his 1.5 acres of lan(d) Tilla few years back, he would borrow money from the village moneylender at an interest rate of five per cent per month (60% per annum).For the last few years, Shyamal has been borrowing from an agricultural trader in the village at an interest rate of three percent per month. At the beginning of the cropping season, the trader supplies the farm inputs on credit, which is to be repaid when the crops are ready for harvest. Besides the interest charge on the loan, the trader also makes the farmers promise to sell the crop to him. This way the trader can ensure that the money is repaid promptly. Also, since the crop prices are low after the harvest, the trader is able to make a profit from buying the crop at a low price from the farmers and then selling it later when the price has risen. We next meet Arun who is supervising the work of one farm labourer. Arun has seven acres of lan(d) He is one of the few persons in Sonpur to receive bank loan for cultivation. The interest rate on the loan is 8.5 per cent per annum, and can be repaid anytime in the next three years. Arun plans to repay the loan after harvest by selling apart of the crop. He then intends to store the rest of the potatoes in a cold storage and apply for a fresh loan from the bank against the cold storage receipt. The bank offers this facility to farmers who have taken crop loan from them.

Question. How agricultural trader plans to receive loan repayment from farmers?
(a) Asking to sell crop to him only
(b) Asking to pay in monthly installments in next 3 years
(c) Asking to store crop in cold storage facility and selling when price is high
(d) None of the above
Answer : A

Question. Who is paying more money while repaying loan?
(a) Shyamal
(b) Arun
(c) Only b
(d) Both a and b
Answer : A

Question. Why agricultural trader asks farmers to repay loan at the time of harvest?
(a) Because prices are high at that time
(b) Because prices are low at that time
(c) Because he wants to sell crop later when prices are high
(d) None of the above
Answer : B

Question. Who do you think might be affected less by loan?
(a) Shyamal
(b) Arun
(c) Only a
(d) Both a and b
Answer : B

3. Read the paragraph given below and answer the questions that follows

The various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, et(c) The Reserve Bank of India supervises the functioning of formal sources of loans. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan. Hence, borrowers have less income left for themselves. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower. This could lead to increasing debt and debt trap. Also, people who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.

Question. Which of the following is not an informal sector loan?
(a) Relatives and banks
(b) Moneylenders
(c) Employers
(d) Cooperatives
Answer : D

Question. Who supervises the functioning of informal sources of loans?
(a) The borrower
(b) Reserve Bank of India
(c) Moneylenders
(d) None of the above
Answer : D

Question. Which one of the following is wrong about formal sector lenders?
(a) They provide credit on high interest rate
(b) They include banks and cooperative societies
(c) They are supervised by RBI
(d) Cost of borrowing is lower
Answer : A

Question. Which loans usually lead to debt trap?
(a) Formal sector loans
(b) Informal sector loans
(c) Loan from commercial banks
(d) None of them
Answer : B

Question. Read the sources given below and answer the questions that follow–
Answer :
Source A – Currency Currency includes paper notes and coins it is a modern form money. Unlike the things that were used as money earlier, modern currency is not made of precious metal such as gold, silver and copper. And unlike grain and cattle, they are neither of everyday use. The modern currency is without any use of its own.
Source B – Reserve Bank of India In India, The RBI issues currency notes on behalf of the Central Government. As per Indian Law, no other individual or organisation is allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of payment that can not be refused in selling transactions in India. Hence, the rupee is widely accepted as a medium of exchange.
Source C – Deposits with Bank The other form in which people hold money as deposits with banks. At a point of time, people need only some currency for their day to day needs but beyond that need they deposit the money with the banks and banks pay interest on such deposits. People can withdrew money whenever they want to.

Question. How modern form of money is different from the things used as money earlier ?
Answer : Modern form of money is not made of precious metal and neither it is of everyday use.

Question. Can you refuse payment made in rupees ? Give reason for your answer.
Answer : Answer : We cannot refuse payment made in rupee in selling transactions in India as the law has legalises the use of rupee as a medium of exchange.

Question. How can people hold money other than cash ?
Answer : People can hold money as deposits with bank other than cash. For this they get interest from bank.

Read the passage and answer the following question – Arun is supervising the work of one farm labourer. He has seven acres of land. He is one of the few persons in Sonpur to receive bank loan for cultivation. The interest rate on the Loan is 8.5 % per annum and can be repaid anytime in the next three years. He plans to repay the loan after harvest by selling a part of the crop.

Question. In how many years, he can pay the loan ?
Answer : 3 years

Question. What type of credit Arun has taken ?
Answer : Arun has taken credit from formal sector.

Question. At what rate of interest Arun gets loan ?
Answer : 8.5%

Source/Extract Based Questions

Read the extract given below and answer the questions that follow: 

Salim, has received an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month time. To complete production on time, Salim has to hire a few more workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses, Salim obtains loans from two sources. First, he asks the leather supplier to supply leather now and promises to pay him later. Second, he obtains loan in cash from the large trader as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. At the end of the month, Salim is able to deliver the order, make a good profit, and repay the money that he had borrowed. Answer the following MCQs by choosing the most appropriate option.

Question. The passage given above related to which of the following options?
(a) Different credit situations
(b) Trading and selling
(c) Smart manufacturing
(d) Complex show manufacturing
Answer : A

Question. According to the given passage, which one of the followings was the benefit of taking credit?
(a) To meet the production expenses
(b) To complete production on time
(c) To increase his earnings
(d) All of the above
Answer : D

Question. Salim was pushed to take credit because of _______ .
(a) Less work force and raw material
(b) Sudden high demand for shoes
(c) Both (a) and (b) are correct
(d) Both (a) and (b) are incorrect.
Answer : B

Question. What could be the reason that Salim did not approach bank for loan?
(a) Lack of trust with bank
(b) No bank in the vicinity
(c) High Interest rate
(d) Leather supplier and trader are known to him
Answer : D

Question. Which of the following statement best describes a debt trap?
(a) When a person takes credit but is unable to repay it and has to take more credit either to repay the previous credit, the person is in a debt trap.
(b) When a person takes credit for production process, earns good profit, returns the credit and again takes credit in the next production cycle, the person is in a debt trap.
(c) When a person takes loan from unorganized sector, the person is in a debt trap.
(d) When a person takes loan from a bank, the person is in a debt trap as the banks charge a very high interest rate on loans.
Answer : A

Question. Ethnic tension between Serbs and Albanians resulted in disintegration of which of the following countries ?
(A) Sri Lanka
(B) Belgium
(C) Yugoslavia
(D) Bolivia
Answer : C

Question. Which of the following statement best describes the double coincidence of wants?
(a) A person must have money if he or she wishes to buy a good or service.
(b) A person should demand a great amount of a good or service so that another person is willing to produce it.
(c) Two individuals must agree to sell and buy each other’s commodities to conduct the trade.
(d) Two individuals must be able to produce all goods and services for the entire society.
Answer : C

Question. A paper that instructs a bank to pay a specific amount from a person’s account to another person in whose name the paper is issued is called a ______.
(a) demand deposit
(b) time deposit
(c) bond
(d) cheque
Answer : D

Question. Arrange the Sequence
(i) Bank money
(ii) Commodity money
(iii) Metallic money
(iv) Paper money
Options –
(A) iv-i-ii-iii
(B) ii-iii-iv-i
(C) iii-iv-ii-i
(D) iii-iv-i-ii
Answer : B

Question. Mohan produces ice creams and wants to sell it to people. He also requires sugar to make ice cream,so he wishes to buy sugar. Now, Mohan is unable to find a person who will exchange sugar for ice cream.
Which of the following terms explain the problem that Mohan is facing?
(a) Lack of trade expertise
(b) Double coincidence of wants
(c) Irrational consumer behavior
(d) Future expectations
Answer : B

Question. Paper notes are accepted as a medium of exchange because the currency is authorized by the government of the country. (True/False)
Answer : True

Question. Since money acts as an intermediate in the exchange process, it is called a medium of exchange. (True/False)
Answer : True

Question. In the barter system, when the demand of two persons for each other’s commodity is raised at the same time, it is called double coincidence of wants. (True/False)
Answer : True

Assertion and Reasoning Based Questions Mark the option which is most suitable :
(a) If both assertion and reason are true and reason is the correct explanation of assertion.
(b) If both assertion and reason are true but reason is not the correct explanation of assertion.
(c) If assertion is true but reason is false.
(d) If both assertion and reason are false.

Question. Assertion : Banks charge a higher interest rate on loans than what they offer on deposits.
Reason : The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Answer : A

Question. Assertion : The Reserve Bank of India supervises the functioning of formal sources of loans.
Reason : The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
Answer : B

Question. Assertion : The facility of demand deposits makes it possible to settle payments without the use of cash.
Reason : Demand deposits are paper orders which make it possible to transfer money from one person’s account to another person’s account.
Answer : D

Question. Assertion : Rohan took credit in the form of advance payment from a buyer and he delivered the goods to the buyer on time and also earned profit. The credit made Rohan better off in this situation.
Reason : Credit can never push a person into a debt trap.
Answer : C

Question. Assertion : The modern currency is used as a medium of exchange; however, it does not have a use of its own.
Reason : Modern currency is easy to carry
Answer : B

Question. Assertion : The terms of deposit are same for all credit arrangements.
Reason : Credit arrangements are very complex process so to remove the complexities same terms of deposits are used.
Answer : D
 

Important Questions for NCERT Class 10 Social Science Money And Credit

Question. Give the meaning and functions of money.
Answer : Meaning of money: Money may be anything chosen by common consent as a medium of exchange and measure of value.
Functions of money:
(A) Primary functions: (a) Medium of exchange (b) Medium of value
(B) Secondary functions: (a) Store of value (b) Standard of deferred payments (c) Transfer of value
(C) Contingent functions: (a) Basis of credit (b) Liquidity (c) Maximum utilization of resources (d) Guarantor of solvency (e) Distribution of National Income

Question. What monetary system does India follow?
Answer :
(a) India has adopted a representative paper currency or the managed currency standard.
(b) The monetary standard is synonymous with the standard money adopted. Paper currency in
India is the unlimited legal tender i.e. it is used to settle debts and make payments against all transactions.
(c) RBI (The Reserve Bank of India) issues all currency notes and coins except one rupee notes and coins which are issued by the ministry of finance.
(d) The system governing note issues the minimum reserve system viz. certain quantity of gold is kept in reserve.

Question. What is banking? Give the main features of commercial banking.
Answer : Banking is defined as the accepting of deposits for the purpose of lending or investment of deposited money by the public, repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise.
Main features of commercial banks are as follows:
(i) It deals with money, it accepts deposits and advances loAnswer :
(ii) It also deals with credit, it has the power to create credit.
(iii) It is a commercial institution, whose aim is to earn profit.
(iv) It is a unique financial institution that creates demand.
(v) It deals with the general public.

Question. What is the role played by the banks in the economic development of a country?
Answer : The banks play an important role in an economy of a country. They give interest on the money deposited by the people. Thus they add to the income of the family. Many families survive on the bank interest. The banks mediate between those who have surplus money and those who need money. Banks provide cheap loans to a large number of people. They boost the industry also by providing cheap loans to industrialists. Banks are the backbone of the country’s trade. Banks employ a large number of people and as such they solve the problem of unemployment to a great extent.

Question. What is necessary to reduce the dependence on informal sources of credit in rural areas?
Answer : It is necessary that banks and cooperatives increase their lending in the rural areas.

Question. Currency notes in India are issued by the ...... .
(a) State Bank of India
(b) Reserve Bank of India
(c) Central Bank of India
(d) None of the above.
Answer : B

Question. What are the drawbacks of informal sources of credit?
Answer : (i) Most of the informal lenders charge a much higher interest on loans. Thus the cost to the borrower of the informal loans is much higher.
(ii) Higher cost of borrowing means a larger part of earning of the borrowers is used to repay the loan and they have less income left for themselves.
(iii) The high rate of interest of borrowing can mean that the amount to be repaidis greater than the income of the borrower and it can lead to increasing debt and debt-trap.
(iv) People who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.

Question. How is the facility of cheque useful?
Answer : A cheque is a paper instructing the bank to pay a specific amount from a person’s account to the person in whose name the cheque has been issued. The payer, who has an account with the bank, makes out a cheque for a specific amount. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.

Question. What is money? Why is modern money currency accepted as a medium of exchange?
                               Or
‘The rupee is widely accepted as a medium of exchange’. Explain.
Answer : Money is something that can act as a medium of exchange in transactions.
Everyone prefers to receive payments in money and then exchange the money for things they want. For example, take the case of a blacksmith. He wants to sell tools in the market and buy rice. The blacksmith will first exchange tools that he has produced for money and then exchange the money for rice. The transactions are made in money because a person holding money can easily exchange it for any commodity or service that he or she wants.

Question. Mention one of the major reasons which prevents the poor from getting bank loans.
Answer : Absence of collateral is one of the major reason which prevents the poor from getting bank loans.

Question. “Whether credit would be useful or wet, it depends on the situations”. Give two different examples in support of this statement.
Answer : We can give examples of Salim and Swapna in support of this statement.
(i) Salim is a shoe manufacturer. He obtains credit to meet the working capital needs of production. The credit helps him to meet the ongoing expenses of production, complete production on time and thereby increase his earnings. Credit, plays a vital and positive role in this situation.
(ii) Swapna is a small farmer and grows groundnuts in her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation, hoping that her harvest would help repay the loan. But the failure of crops makes loan repayment impossible. She has to sell a portion of her land to repay the loan. Credit, instead of helping Swapna improve her earnings, leaves her worse off. She falls into a debt trap.

Question. What is the meaning of ‘barter system’?
Answer : The exchange of goods, property, services, etc. for other goods, etc. without using money is known as ‘barter system’.

Question. Give the reason why transactions are made in money.
Answer : A person holding money can easily exchange it for commodity or service that he/she might want.