CBSE : Class X : Economics : Chapter 3 : Money And Credit : Question And Answer

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  • Published date: March 26, 2019
  • Modified date: March 26, 2019
    • Vasai East, Thane, Maharashtra

 Q1: What is Double Coincidence of wants ? Why it is essential in barter system ?

Ans: Double coincidence of wants a situation where both the parties have to agree to sell and buy each other commodities. This is basis of barter system where commodities are exchanged, hence double coincidence of wants becomes must for barter system.

 Q2: Why money is called medium of exchange ?

Ans: In current mode of doing business, money is used as intermediate in the exchange process. Money also eliminates double coincidence of wants. Because of these reasons, money is called medium of exchange.

 Q3: What is currency ?

Ans: Currency is either paper notes or metallic coins authorised by government of that country as a medium of exchange. In India, Reserve Bank OF India issues currency notes on behalf of government.

Q4: What are the various laws governing use of rupees in India ?

A) Following are the various laws governing use of currency in India:

a) No one except Reserve bank Of India can issue currency.

b) The rupee acts as medium of payment in India.

c) No one can refuse rupee as mode of settling transactions in India.

d) No individual in India can legally refuse a payment made in rupees. 

Q5: Why people prefer to deposit money in banks ?

A) : People prefer to deposit the surplus money in bank because:

a) It gives them interest

b) Its safe

c) It can be withdrawn as and when needed.

 Q6: What is Demand deposits ?

Ans: Since the deposits in the bank accounts can be withdrawn as and when needed or on demand, these deposits are called demand deposits.

 Q7: What is cheques ?

A) Demand deposits provide facility of making payment by bank instrument called cheques rather than cash. A cheque is a paper instructing the bank to pay specific account from the person’s account to the person in whose name the cheque has been issued.

 Q8: The modern forms of money – currency and deposits – are closely linked to the working of the modern banking system. Justify.

A) The facility of cheques against demand deposits makes it possible to directly settle payment without the use of cash. Bank plays a very vital role as there would be no demand deposits and no payment by cheques against the demand deposit in absence of banking system. Thus, it is clear that currency and deposits are closely linked to the working of the modern banking system.

 Q9: What do the banks do with the the deposits which they accept from the public ?

A) Banks keep a very small portion of the deposits in cash which is used to pay the depositors who might come bank to withdraw money on any given day. Banks use major potion of deposits to lend to borrowers at higher interest rates. In this way, bank mediate between those who have surplus funds (depositors) and those who are in need of funds (borrower).

 Q10: What is major source of income for the banks ?

A) Banks charge higher interest rates on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is the main source of income for banks.

 Q11: What is credit ?

A) 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.

 Q12: What is collaterals ?

A) Collaterals is an asset that the borrower owns (such as land, building, vehicle, livestocks, deposits with the banks) and uses this as guarantee to a lender until the loan is paid.

 Q13: What is Terms of credit ?

A) The interest rate, collaterals, and documentation requirement, and mode of repayment together comprise Terms of credit.

 Q14: Why do lenders ask for collaterals while lending ?

A) If the borrower fails to repay the loan, the lender has right to sell the asset or collateral to get his money back. Property such as land titles, deposits with the banks, livestock, vehicles are some common examples of collaterals used in borrowing.

 Q15: What are formal sector loans ?

A) The lending entities such as banks and cooperatives are called formal sector for loans. The functioning of these banks and cooperatives are supervised by RBI. RBI also ensures that banks not only provide loans to only profit making business but also to small scale industries, small borrowers etc. Periodically, banks keep submitting information about the loans to RBI.

 Q16: What are informal sector loans ?

A) The lenders such as moneylenders, traders, employers, relatives etc are part of informal sector for loans. They usually give loans at much higher interest rates as compared to formal sector. Due to high interest rate, the borrowers has less profit margins. Sometime the income from business is lesser then the interest rate to be paid to borrower which leads to debt trap.

 Q17: Cheap and affordable credit is crucial for the country’s development. Justify.

A) High cost of borrowing plays a deterrent factor in setting up new business which has adverse impact on overall economy. For this reason, banks and cooperative societies need to lend more. This would lead to higher incomes and many people could then borrow cheaply for variety of needs. They could grow crops, do business, set up small scale industries etc. Hence it is evident that cheap loans can boost business prospect and strengthen economy.

 Q18: What are the major hurdles in securing loans from formal sector ?


Why poors usually fails to take loans from formal sector such as banks ?

A) The major hurdles for borrower in securing loans from formal sector such as bank is absence of collaterals. The other hurdles is lack of banking entities in rural India. The poor and small time borrowers are forced to borrow from informal sector because they personally knows them and does not demand collaterals, but charges higher interest rates.

 Q19) What is Self help Groups ?

A) Self Help Groups (SHG) is small pool of women (usually 15-20 members), usually belonging to one neighbourhood who meet and save regularly. Saving per member varies from Rs 25 to Rs 100 or more depending upon the ability of the people to save. Members can take small loans from the group to meet their needs. The SHG charges interest on this loan but it lesser then moneylenders.

If the group is regular in saving, they becomes eligibles for availing loans from banks. The loan is sanctioned on group name which can be used for various business activities.

 Q20: Write short note on Grameen bank of Bangladesh.

A) Grameen Bank of Bangladesh is the brainchild of professor Muhammad Yunus who started this in 1970s. Nearly all its borrowers are women and belongs to the poorer section of society. These borrowers have proved that not only are poor women reliable borrower, but they can start and run variety of small income generating activities successfully.


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