St.

Anthony's School
Class 10th
Subject:- Social Science
Chapter 3(Economics)
Money and Credit

NCERT Question Answers:

Q1.In situations with high risks, credit might create further problems for the borrower.
Explain.
Ans.The problems for the borrower, in
situation with high risks, may include:
(a) The borrower may have to pay interest on principal as well as an interest to the lender.
(b) The lender may resort to court proceedings.
(c) The lender may invoke security agencies, banks etc.

Q2. How does money solve the problem of double coincidence of wants? Explain with
an example of your own.
Ans.Money solves the problem of double coincidence of wants, a person repairs watches but
he wants a shirt. It is through money, he repairs a watch and gets money for his service. He
goes to the market, and buys a shirt. If, let us suppose, there is no money to act as an
instrument of exchange, how will the watch repairer buys-a shirt? He will have to search for
a person who wants his watch to be repaired, and then with money he gets, he will have to
search another person who is selling shirts. Money solves the problems of the watch-maker
and the seller of shirts.

Q3.How do banks mediate between those who have surplus money and those who
need Money?
Ans.People who have surplus money want earnings on their cash they have with them.So
they deposit their money in the bank and get back interest on their deposits, and their money
in the bank is safe against that if they would have their money with some private individuals
and risk their money. On the other hand the bank gives money on loan to someone who
needs money and takes interest from the borrower. Thus the bank solves the problem of one
who has surplus money and of those who need money.

Q4.Look at a 10 rupees note. What is written on top? Can You explain this statement?
Ans.On a ten rupee note, the statement written by the Governor of the Reserve Bank of
India is that: I promise to pay the bearer the sum of ten rupees.

Q5.Why do we need to expand formal sources of credit in India?

Ans.Formal sources of credit are the Government authorised organisations that are eligible to
lend money to people. It is important to expand formal sources of credit in India because the
informal sources are not registered and lend money to people at very high-interest rates, which is
unfair and must not be practised. If formal sources of credit are increased, people will be able to
borrow money at lesser interest rates and will not be liable to do any extra work for the borrower.
Especially in India, if formal sources of credit are increased, people will be able to take loans and
use them for the development of the country.

Q6.What is the basic idea behind the SHGs for the poor? Explain in your own words.
Ans.SHGs stand for Self Help Groups. The basic idea behind the SHGs is that the poor are
able to obtain loans from their own self-organised groups, and that too at a lower rate of
interest. The SHGs help promote saving among the poor.

Q7.What are the reasons why the banks might not be willing to lend to certain
borrowers?
Ans.The bank lends money to those who are able to give back the loan. To those who are
unemployed or ill-employed, the bank would not be willing to give them a loan. If it does, it
may lose the interest as well as the principal amount.

Q8.In what ways does the Reserve Bank of India supervise the functioning of the
bank? Why is this necessary?
Ans.The Reserve Bank of India supervises the functioning of the banks in numerous ways.
This is necessary as well. Some of the many ways through which the RBI supervises these
banks are:

*The RBI monitors that the banks keep their account accurately;The deposits of the people
are kept safely.
*The RBI keeps drawing all information from the records which the banks possess.
*The RBI supervises the banks that function according to the rules prescribed by it.
*The idea behind the supervision of the RBI is that the people’s money lay safe; that they
keep all accounts of records accurately;
that the banks function according to the guidelines prescribed by the RBI.

Q9.Analyse the role of credit for development.

Ans.Money is required by the people for all that they do, especially in business,
housebuilding, industries etc. Without money it is impossible to carry on with economic
activities. Quite enough money, in cash, is not available. People resort to the role of
the-credit. Is, indeed, very important. Credit helps arrange money in all economic activities,
especially in development projects. Credit can be arranged through formal sources and
informal sources. It is always better that the formal sources of credit should be used.

Q10.Manav needs a loan to set up a small business. What basis will Manav decide
whether to borrow from the bank or the moneylender? Discuss.
Ans.Manav has to arrange money if he wants to set up a business. Even a small business
requires a lot of money. Money can be arranged through credit. He should take a loan from
the bank and not borrow money from any moneylender. The rate or interest on loan from the
banks is always lower than interest of interest from the moneylender.

Q11.In India, about 80 percent 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
farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
Ans.(a) Small farmers may not be able to pay the bank the money they borrow. The banks
would not take any such risk.
(b) Small farmers can borrow money from the moneylender is or from the traders or the rich
people
(c) If the small farmers borrow money from informal sources such as moneylenders or
traders, will the terms of credit be unfavourable for the small farmers? They will have to pay
a higher rate of interest than the one if they borrow from the formal sources of credit, say, the
bank or the cooperative societies.
(d) Small farmers may get credit from (i) banks, (ii) cooperative/agricultural banks, (iii)
cooperative societies, (iv) Self-Help Groups (SHGs).