NCERT Solutions Class 10 Social Science Economic
(Understanding Economic Development)
The NCERT Solutions in English Language for Class 10 Social Science – Economic (Understanding Economic Development) Chapter – 3 (Money and Credit) has been provided here to help the students in solving the questions from this exercise.
Chapter – 3 (Money and Credit)
| Exercises |
1. In situations with high risks, credit might create further problems for the borrower. Explain.
Answer – In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender. Thus, in situations with high risks, if the risks affect a borrower badly, then he ends up losing more than he would have without the loan.
2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer – Double Coincidence of Wants is an essential feature in a barter system, where goods are directly exchanged without the use of money. However, in an economy using money as a medium of exchange, it eliminates this by providing the crucial intermediate step.
For example, it is not necessary for a shoemaker to look for a farmer who will buy shoes made by him and at the same time, sell rice to him. All he has to do is to find a buyer for his shoes, who will pay him money for them. With this money he can purchase rice or any other commodity available in the market.
3. How do banks mediate between those who have surplus money and those who need money?
Answer – Banks accept deposits from people who have surplus money, paying interest on these deposits. The banks use the major portion of the deposits to extend loans to those who need money, charging them slightly higher interest than what they pay to the depositors. It is with the banks help both the people benefit,person having surplus money and the person in need of money. In this way, banks mediate between those who have surplus money and those who need money.
4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Answer – The following words are written at the top of a 10 rupees note ‘I Promise To Pay The Bearer The Sum Of Ten Rupees.’Governor’ Reserve Bank of India Guaranted by the Central Government’. A 10 Rupee note is acceptable as a medium of exchange because this is authorized by the government of the country. In India, the Reserve Bank of India issues currency notes on behalf of the Central Government. As her Indian Law, no other individual or organization is allowed to issue currency.
5. Why do we need to expand formal sources of credit in India?
Answer – The formal sector still meets only about half of the total credit needs of the rural people. The remaining credit needs are met from informal sources. Most loans from informal lenders carry a very high interest. The formal sources of credit for lending need to expand their operations particularly in rural areas, so that the dependence, on informal sources of credit reduces.
6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer – The basic idea behind the SHGs is meant to create self – employment opportunities for the poor. The SHGs help poor borrowers to overcome the problem of lack of collateral. They can get timely loans for a variety of purposes and at a reasonable interest rate. Moreover, SHGs are the building blocks of organizations of rural poor.
7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer – A number of borrowers have no collateral to pledge against loans. Collateral is an asset that the borrower owns and pledges as a guarantee to the lender until the loan is repaid. The main demand for loans is for crop production. Repayment of the loan is crucially dependent on the income from farming. Whether loans would be useful or not, therefore, depends on the risks in the situation. That is why, banks have no interest to lend to such borrowers. Thus, the banks might not be willing to lend to those borrowers who have no collateral and whose repaying capacity is not guaranteed.
8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer – The Reserve Bank of India monitors the amount of money that banks loan out, and also the amount of cash balance maintained by them. It also ensures that banks give out loans not just to profiteering businesses but also to small cultivators, small scale industries and small borrowers. Periodically, banks are supposed to submit information to the RBI on the amounts lent, to whom and at what rates of interest.
This monitoring is necessary to ensure that equality is preserved in the financial sector, and that small industries are also given an outlet to grow. This is also done to make sure that banks do not loan out more money than they are supposed to, as this can lead to situations like the Great Depression of the 1930s in the USA, which greatly affected the world economy as well.
9. Analyse the role of credit for development.
Answer – Credit is one of the most major aspects of the development of a country. Affordable credit plays a very important role in the country’s development. People need loans for different reasons and to meet this requirement credit is very important. In India, a major part of the population is engaged in agricultural activities; credit plays a very crucial role in agricultural activities. People can borrow money and use modern farming methods to grow crops which are more reliable than the traditional methods of growing crops. Apart from this, there are small scale industries, business and various other sectors where credit can help people and ultimately result in the development of the country.
10. Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
Answer – Manav will decide whether to borrow from the bank or the money lender on the basis of the following terms of credit:
- Rate of interest
- Requirements availability of collateral and documentation required by the banker.
- Mode of repayment. The penalty in case of default in repayment.
- Terms of repayment are different of bank and the money lender. Whichever he finds easier he can consider that. Depending on these factors and of course, easier terms of repayment, Manav has to decide whether he has to borrow from the bank or the moneylender.
11. In India, about 80 percent of farmers are small farmers, who need credit for cultivation.
(i) Why might banks be unwilling to lend to small farmers?
Answer – Small farmers normally have no collateral to pledge against loans. Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. That is why banks have no interest to lend to small farmers.
(ii) What are the other sources from which the small farmers can borrow?
Answer – Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives and SHGs etc.
(iii) Explain with an example how the terms of credit can be unfavorable for the small farmer.
Answer – An example of unfavourable terms of credit for the small farmer is Shiva is a small farmer. He borrows money at the rate of 4 % per month (i.e., 48 % per annum) from a local moneylender to qrow his crop. But the crop fails due to severe drought. As a result Shiva has to sell a part of his land to repay the loan. Now his condition becomes worse than before.
(iv) Suggest some ways by which small farmers can get cheap credit.
Answer – The small farmers can get cheap credit from different sources like – Banks, Agricultural Cooperatives, and SHGs.
12. Fill in the blanks:
(i) Majority of the credit needs of the __________ households are met from informal sources.
(ii) __________ costs of borrowing increase the debt-burden.
(iii) __________ issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on __________.
(v) __________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Answer –
(i) Majority of the credit needs of the poor households are met from informal sources.
(ii) High costs of borrowing increase the debt-burden.
(iii) Reserve Bank of India issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on deposits.
(v) Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
13. Choose the most appropriate answer.
(i) In an SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.
Answer – (b) Members.
(ii) Formal sources of credit do not include
(a) Banks.
(b) Cooperatives.
(c) Employers.
Answer – (c) Employers
