QA Money and Credit

Class X

Subject: S.St

Chapter: Money and credit

Answer the following questions

Q. What is Barter system? Explain this system with an example.
Ans. *Barter System:* In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. When both parties have to agree to sell, buy and ready to exchange each other’s commodities are called double coincidence of wants.

*Example* : A Shoe seller sells his shoe in exchange o f wheat. In this case, both parties i.e., shoe seller and wheat producers have to agree to sell and buy each other’s commodities. This is barter system and this system requires double coincidence of want.

Q. Mention the short comings of the barter system that led to the evolution of money?
Ans.
A. Exchanging of goods was difficult. Demand of two persons for each other’s commodity should have risen at the same time, other wise exchange was not possible. This is known as double coincidence of want.
B. It is a time consuming process.
C. Exact valuation of goods may not be take place at the time of exchange of goods.
D. It is difficult to get the product on the spot and at the right time.

Q. Is there any criterion to make payments without usi ng cash? Explain.

Ans. Yes, We can make payments being made by cheques instead of cash.

A. For payment through cheque, the payer who has an account with the bank makes out a cheque for a specific amount.
B. A cheque is a paper instructing the bank to pay a specific amount to the person in whose name the cheque has been made.

Q. Cheap and affordable credit is essential for poor households both in rural and urban areas”. In the light of given statement explain the economic and social values attached to it.
Ans. *A. Economic value:*
[a] Cheap and affordable credit will provide the economic development opportunities to the poor households.
[b]  It will increase the income of the poor. With the help of loan they can start their any small trade. Gradually they will return the credit and become self dependent.

*B. Social Value:*
[a] The poor can live with dignity in the society if they will become self dependent.
[b] They are free from the clutches of money lender and traders of their locality.

Q. How would you describe the organization and functioning of Self Help Group?
Ans.
A. Self Help Groups are the groups organized by the poor needy persons themselves, especially women to fulfill their credit and loan needs. A typical Self Help Group has 15 to 20 members, who meet and save regularly.
B. Saving per member varies from Rs 25 to 100 or more, depending in the ability of the people to save.
C. Members can take small loans from the group itself to meet their needs.
D. The group charges interest on these loans but this is still less than what the money lenders charges.
E. After a year or two, if the group is regular in saving, it becomes eligible foe availing loan from the bank.
F. Loan is sanctioned in the name of group and is meant to create self-employment opportunities for the members.

Q. What facts would you use to explain the role of credit for the development?
Ans.
A. Credit meets the working capital for production.
B. Credit helps the producers to meet the ongoing expenses of production.
C. Farmers and industrialists need credit to expand their business and to purchase new tools and equipments.
D. With the help of credit a person can purchase a house, bike, car and other house hold implements

Q. Why there is a need to supervise the banking system by RBI?
Ans. Reserve bank of India supervises the Bankin g system due to the following reasons:
A. The RBI monitors that the banks maintain a minimum cash balance.
B. RBI ensures that the banks give loan not just to th e profit making businessmen and traders but also to small cultivators, small scale industries and small borrowers.
C. Banks have to submit the information to the RBI on how much they are lending, to whom, at what interest rates etc.

Q. With the help of one example can you explain the role of credit for development?
Ans.
A. Credit helps in increasing economic activities of the borrower.
B. If credit is provided at reasonable rate of intere st they can improve their economic condition. This will help them to improve their sta tus.
C. With the help of credit people could increase their agricultural production, do business, set up small scale industries.
Example: During festival season Salim, a shoe manufacturer has received an order from a large trader in town for 3000 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 material. To meet his expenses Salim obtain loan from two different sources. 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. He had also earned huge profit. In this way credit helps Salim to improve his business.

Q. What are Self Help Groups? Explain the aims of Self Help Groups.
Ans. Self Help Groups: Self Help Groups is an organization of 15-20 members belonging to one neighborhood, who meet and save money regularly .
Aim of Self Help Groups:
[a] The main aim of Self Help Group is to oganise rural poor, women in particular and collect their savings and t o take loans from the group to meet their needs.
[b] The group takes loan from the bank to create self employment opportunities for the members.

Q. What is debt trap? Why is it more rampant in rural areas? Give reasons.

Ans. Debt Trap: Debt trap is a condition where the credit pushes the borrower into a situation from which the recovery is very painful, it is called debt trap. Here the borrower fails to repay the borrowed money to the l ender and he has to sell his small portion of land to repay the loan.

It is rampant in rural areas because of the following reasons:
A. Rural areas small farmers give preference to the informal sources to take loan. The interest rates if these sources are very high.
B. Farmers take loan for crop production, equipment, fertilizers. If crop fails due to any reason they become unable to pay back the loan.
C. There is unusually absence of any kind of support t o the farmers in case of crop failure.
D. The main source of their income is production of crops. If it fails than they don’t have any other source of income from which they can repay their borrowings.

Q. Why do lenders ask for collateral while lending?
Ans. Lenders asked for collateral while lend ing money to the borrowers due to the following reasons:
A. Lenders demand collateral against loan be cause it is a security against loan.
B. Collateral is an asset that the borrower owns a nd uses this as a guarantee to lender until the loan repaid.
C. If the borrower fails to repay the loan, the len der has the right to sell the asset or collateral to obtain payment.
D. Property such as land titles, deposits with bank s, livestock, gold, are some common examples of collateral.

Q. How will you justify that credit is a crucial element in economic life?
Ans. Credit plays a crucial role in economic life. Some time it plays a negative role some time positive. Positive Role:
A. Sometimes credit helps to increase earnings makes the person better than before.
B. Credit helps the person to enhance his business hi s economic condition. Negative role:
A. Some time person borrow money to increase his business or for personal use.
B. If the borrower fails to pay back the borrowed money, it pushes the person in to bank trap.
C. To repay the loan the borrower has to sell his land or the lender detained the collateral.

Q. What is Bank? Can you illustrate the functions of a Bank?
Ans. Banks are institutions which accept the deposits from the public withdraw able by cheques and by demand deposits and advances loans o f various types to the borrowers is called a Bank. Following are the functions of Bank:
A. It accepts the deposits from customers. It can be i n the form of saving account
deposits, current account and fixed deposits.
B. It gives interests on the savings to the customers.
C. It provides withdrawal facility to the customers.
D. It gives loans and advances to the borrowers and charge interest
E. It provides agency function like transfer of funds, collection of funds, payment of various items, purchase and sale of shares and securities.