Money And Credit Class 10 Notes
(1) Money is anything which is commonly accepted as a medium of exchange and in discharge of debts.
(2) People exchange goods and services through the medium of money. Money by itself has no utility. It is only an intermediary. The use of money facilitates exchange.
(3) Direct exchange of goods against goods without use of money is called barter exchange (i.e. exchange of goods for goods). This is also known as CC economy (i.e. commodity for commodity economy).
(4) Simultaneous fulfillment of mutual wants by buyers and sellers is known as double coincidence of wants. Let us understand this concept with the help of an example :
Example – A shoe manufacturer wants to sell his shoes in the market and buy wheat. Now he has to directly exchange shoes for wheat without the use of money. He would have to look for a wheat growing farmer who not only wants to sell wheat but also wants to buy shoes in exchange.
(5) Before the introduction of coins, a variety of objects were used as money. For example, since the very early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins–gold, silver, copper coins. This process was finally taken over by the paper money (which means currency notes). As the volume of transactions increased, even paper money started becoming inconvenient because of time involved in its counting and space required for its safe keeping. This led to the introduction of bank money (credit money) in the forms of cheque, demand drafts, credit cards etc.
(6) The major function of a bank is to give loans, particularly to businessmen and entrepreneurs and thereby earn interest.
(7) Banks get money for providing loans by accepting the deposits from people. Deposits are the lifeline of a bank. These are of two types : time deposits and demand deposits. Time deposits can be withdrawn only after a specified period of time. Demand deposits in the bank can be withdrawn on demand by issuing cheques.
(8) The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.
(9) Credit (i.e. giving loans) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payments with interest. Credit plays a vital and positive role in the society. This can be explained further with the help of a suitable example. Saleem obtains loans to meet the needs of production. The credit helps him to meet the need of ongoing expenses of production, complete production in time and thereby increase his earnings.
(10) Sometimes, credit, instead of helping people, pushes them into a debt trap. In Swapana’s case who is a farmer, the failure of crop made loan repayment impossible. Credit in this case pushes the borrower into a situation from which recovery is painful.
(11) Terms of credit include interest rate, collateral and documentation requirements and the mode of repayment. The terms of credit may vary depending on the nature of the lender and the borrower.
- Collateral is an asset that the borrower owns (such as land, building, vehicles, livestock etc.) and uses this as a guarantee to the lender until the loan is repaid.
- Formal credit is generally available with the banks and cooperatives. They charge lesser rates of interest than informal institutions. The Reserve Bank of India (RBI) supervises the functioning of formal sources of loan. Informal lenders include moneylenders, traders, employers, relatives and friends etc. They charge much higher interest on loans. There is no one to stop them from using unfair means to get their money back.
- The idea behind Self-Help Groups is to organise the rural poor into self-help groups and collect their savings. Saving per member varies from Rs 25 to Rs 100 or more depending on the ability of the people to save. Members can take small loans from the group itself to meet their own needs. The group charges less rate of interest on these loans. If the group is regular in savings, it becomes eligible for availing loan from the bank.
Money And Credit Class 10 Notes NCERT Book Questions
Q.1. List the various sources of credit in Sonpur.
Ans. There are various sources of credit which are available in Sonpur. These are as follows :
(i) agricultural traders (ii) moneylenders (iii) commercial banks
(iv) cooperative societies (v) relative and friends etc.
Q.2. Look at a 10-rupee note. What is written on the top? Can you explain this?
Ans. Reserve Bank of India (Guaranteed by the Central Government) is written on a 10-rupee note. This statement means that the Central government has authorised the Reserve Bank of India to issue this note on behalf of the Central government.
Q.3. Write the functions of money.
Ans. Money acts as a common medium of exchange, a common measure of value, a standard of deferred payments and a store of value.
Q.4. How do banks mediate between those who have surplus money and those who need money?
Ans. Banks collect surplus money with people, as deposits. Banks use a major portion of these deposits to extend loans. There is a huge demand for loans by businessmen and industrial houses for various economic activities. Banks may use the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers) and banks charge a higher interest rate on loans than what they offer on deposits.
Q.5. Modern currency is without any use of its own as a commodity. Why is it accepted as money?
Ans. Modern forms of money include paper notes and coins. Modern currency is neither made of precious metals such as gold, silver and copper nor consists of daily use commodities. The modern currency is without any use of its own. It is accepted as a medium of exchange because the currency is authorised by the government of a country.
Q.6. Why are banks willing to lend to women organised in self-help groups (SHGs)?
Ans. Non -payment of loan by any member of the group is followed up seriously by other members in a group. Because of this feature, banks are willing to lend to the poor women of SHGs, even though they have no collateral as such.
Q.7. Why do you think that the share of formal sector credit is higher for the richer households, compared to the poorer households?
Ans. The share of formal sector credit is higher for the richer households because they can deposit the collaterals (security) such as land, building, livestock etc. while it is difficult for the poorer households because of non-availability of such collaterals.
Q.8. Compare the terms of credit for the small farmer, the medium farmer and the landless agricultural worker in Sonpur.
|Small farmer||Medium farmer||Lendless agricultural worker|
|Small farmers generally take||For medium farmers credit||Being a landless agricultural|
|loan either from moneylenders||facilities are also available||worker he remains idle several|
|or from agricultural traders. The||from banks at a very||months in a year. To meet his|
|rate of interest is very high but||reasonable rate of interest.||contingent requirements (in case|
|neither collateral nor||Repayment terms are||of illness, or festivals) he has to|
|documentation is required for||flexible but in the process of||borrow credit form moneylender|
|taking loan.||getting credit, documentation||at a very high rate. These workers|
|and collateral is required.||are exploited by these|
Q.9. In India, about 80% of farmers are small farmers who need credit for cultivation.
- Why might banks be unwilling to lend to small farmers?
- What are the other sources from which the small farmers can borrow?
- Explain with an example how the terms of credit can be unfavourable for the small farmers.
- Suggest some ways by which small farmers can get cheap credit.
Ans. (a) As the small farmers find it difficult to provide necessary documents / formalities and collateral security required for loan, so these banks might be unwilling to lend to small farmers.
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