case study questions class 10 economics chapter 3

Case Study Questions Class 10 Economics Money and Credit

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Case study Questions in Class 10 Social Science Economics Chapter 3  are very important to solve for your exam. Class 10 Social Science Chapter 3 Case Study Questions Class 10 Economics have been prepared for the latest exam pattern. You can check your knowledge by solving case study-based questions for Class 10 Social Science Chapter 3 Money and Credit

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In CBSE Class 10 Social Science Paper, Students will have to answer some questions based on  Assertion and Reason . There will be a few questions based on case studies and passage-based as well. In that, a paragraph will be given, and then the MCQ questions based on it will be asked.

Money and Credit Case Study Questions With Answers

Here, we have provided case-based/passage-based questions for Class 10 Social Science  Chapter 3 Money and Credit

Case Study/Passage Based Questions

In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organize rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly. Saving per member varies from ₹25 to ₹100 or more depending on the ability of the people to save. Members can take small loans from the group itself to meet their needs. The group charges interest on these loans but this is still less than what the moneylender charges. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank. The loan is sanctioned in the name; of the group and is meant to create self-employment opportunities for the members. For instance, small loans are provided to the members for releasing mortgaged land, for meeting working capital needs (e.g. buying seeds, fertilizers, raw materials like bamboo and cloth), for housing materials, for acquiring assets like a sewing machine, handlooms, cattle, etc.

(i) Fill in the blanks from the given options: In Self Help Groups, …….. decide the savings and loan activity option. (a) Reserve Bank of India (b) Members (c) Co-operatives (d) Rural Banks

Answer: (b) Members

(ii) 85% of the loans taken by the poor households in the rural areas are from which of the following sources? (a) Cooperatives (b) Government Bank (c) Informal Sources (d) Local bank

Answer: (c) Informal Sources

(iii) Which of the following aspect is correct regarding the Self Help Groups? (a) They have mainly encouraged rural women to obtain credit. (b) They have helped women to become self-reliant. (c) They have helped women to discuss on relevant issues like health. (d) All of the above

Answer: (d) All of the above

(iv) Why Self Help Groups (SHG) are growing in popularity? (a) As they provide loans at a nominal rate of interest. (b) They create self-employment opportunities for its members. (c) Both (a) and (b) (d) As members of SHG’s require collateral to get loans.

Answer: (c) Both (a) and (b)

(v) Assertion (A): Members can take small loans from the group itself to meet their needs through Self-Help Groups. Reason (R): SHGs are the building blocks of the organization of the rural poor. Codes (a) Both A and R are true and R is the correct explanation of A (b) Both A and R are true, but R is not the correct explanation of A (c) A is true, but R is false (d) A is false, but R is true

Answer: (b) Both A and R are true, but R is not the correct explanation of A

(vi) Which is one of the major reasons that prevent the poor from getting bank loans? (a) Absence of collateral (b) Lack of availability of banks in rural areas (c) Lack of approach towards formal organizations. (d) All of the above

Answer: (a) Absence of collateral

Case Study 2: The chapter “Money and Credit” in Class 10 Economics explores the concepts of money and credit and their significance in economic transactions. It delves into the functions of money as a medium of exchange, unit of account, and store of value. The chapter discusses different forms of money, including currency notes, coins, and digital money. It also examines the role of banks in providing credit and the importance of credit in facilitating economic activities. The chapter covers topics such as formal and informal sources of credit, terms, and conditions of borrowing, and the concept of collateral. Additionally, it highlights the role of the Reserve Bank of India (RBI) as the central bank in regulating the money supply and maintaining stability in the financial system.

Which chapter in Class 10 Economics focuses on money and credit?

a) Chapter 1: Development

b) Chapter 3: Money and Credit

c) Chapter 5: Consumer Rights

d) Chapter 7: Globalization and the Indian Economy

Answer: b) Chapter 3: Money and Credit

What are some of the functions of money discussed in the chapter?

a) Only medium of exchange

b) Only unit of account

c) Only store of value

d) Medium of exchange, unit of account, and store of value

Answer: d) Medium of exchange, unit of account, and store of value

What are some of the sources of credit discussed in the chapter?

a) Only formal sources of credit

b) Only informal sources of credit

c) Both formal and informal sources of credit

d) No sources of credit are discussed

Answer: c) Both formal and informal sources of credit

What is the role of the Reserve Bank of India (RBI) discussed in the chapter?

a) Providing credit to individuals and businesses

b) Regulating the money supply and maintaining stability in the financial system

c) Issuing currency notes and coins

d) Promoting consumer rights and protection

Answer: b) Regulating the money supply and maintaining stability in the financial system

Hope the information shed above regarding Case Study and Passage Based Questions for Class 10 Social Science Economics Chapter 3 Money and Credit with Answers Pdf free download has been useful to an extent. If you have any other queries about CBSE Class 10 Social Science Money and Credit Case Study and Passage Based Questions with Answers, feel free to comment below so that we can revert back to us at the earliest possible By Team Study Rate

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Class 10 Economics Chapter 3 Previous Year Questions - Money and Credit

Previous Year Questions 2024

Q4: Explain the role of banks with regard to money which they accept from the public.      (2023)

Q8: Why are transactions made in money? Explain.     (Term-II,2021-22 C)

Q14: The exchange of goods with a commodity is known as:          (2021 C) (a)  Double coincidence of wants (b)  Local trade (c)  Domestic trade (d)  Foreign trade

Q17: How do demand deposits have the essential features of money? Explain.      ( 2020)

Q25: Why are demand deposits considered as money?    (AI2019)

Q33: Give any two examples of informal sector of credit.    (2018)

Q34: Explain any three loan activities of banks in India.      (Al 2017)

Q39: Why one cannot refuse a payment made in rupees in India?   (2016)

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NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12

NCERT Solutions for Class 10 Social Economics Chapter 3 Money and Credit

September 30, 2019 by phani

Formulae Handbook for Class 10 Maths and Science

Page 52: Question 1: In situations with high risks, credit might create further problems for the borrower. Explain? Answer:

• High-risk situations occur in rural areas because there the main demand for credit is for crop production which involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment.
• There is a minimum stretch of three of four months between the time when farmers buy these inputs and when they sell the crop.
• Farmers generally take crop loans at the beginning of the season and repay the loan after harvest.
• Repayment of the loan is crucially dependent on the income from farming.
• If a crop fails due to shortage of rain or for any other reason, a small farmer has to sell a part of the land to repay the loan.
• Failure of crops create further problems for the borrowers. Credit does not improve his earnings but leaves him worse off than before. Credit in high risks situations pushes the borrower into a debt trap, a situation from which recovery is very painful.

Question 2: How does money solve the problem of double coincidence of wants? Explain with example of your own. Answer: In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look for a book publisher who will buy his cereals at the same time sell him books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service which he needs. This is because money acts as a medium of exchange.

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Question 3: How do banks mediate between those who have surplus money and those who need money? Answer:

• People hold money as deposits with banks which pay an interest rate on them.
• People do not withdraw their cash daily.
• The banks, therefore, hold only 15 percent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the bank on any given day.
• Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
• They use a major portion of the deposits to extend loans to those who need money.
• The banks make use of deposits to meet the loan requirements of the people.
• Thus, in this way, the banks mediate between those who have surplus money and those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two is the main source of income of the banks.

Question 4: Look at a 10 rupee note. What is written on top? Can you explain this statement? “Reserve Bank of India” and “Guaranteed by the Government” are written on top. Answer: In India, the Reserve Bank of India issues currency notes on behalf of the central government. The statement means that the currency is authorized or guaranteed by the Central Government. That is, Indian law legalizes the use of the rupee as a medium of payment that can not be refused in a setting transaction in India.

Question 5: Why do we need to expand formal sources of credit in India? Answer: We need to expand formal sources of credit in India due to the following reasons :

• The moneylenders or the agricultural traders charge a much higher interest on loans. They generally charge 5 percent per month whereas the banks charge about 10 to 15 percent per annum. The higher rate of interest does little to increase the income of the borrowers.
• The farmers who take loans from a trader are forced to sell their crops to him at a low price. As a result of it, the farmers suffer while the traders make a profit by selling grains at a higher prices.
• Higher interest means the borrower has to pay a major portion of his earnings to repay the interest and principal of the loan. This sometimes leads to debt trap for the borrowers.
• On the other hand, banks and cooperatives charge less interest and do not exploit the borrowers. Under these circumstances, there is need for expansion of formal sources of credit in India. It is also necessary that everyone receives these loans.
• This would also lead to higher incomes and many people could then borrow cheaply for a variety of needs. The formal credit should be distributed equally to benefit the poor from the cheaper loan.
• It may be added that cheap and affordable credit is crucial for the development of the country.

Question 6:  What is the basic idea behind the SHGs for the poor? Explain in your own words. Answer: The basic behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral. Thus, the main objectives of the SHGs are:

• To organize rural poor especially women into small Self Help Groups.
• To collect savings of their members.
• To provide loans without collateral.
• To provide timely loans for a variety of purposes.
• To provide loans at a responsible rate of interest and easy terms.
• Provide a platform to discuss and act on a variety of social issues such as education, health, nutrition, domestic violence, etc.

Question 7: What are the reasons why the banks might not be willing to lend to certain borrowers? Answer: The banks might not be willing to lend certain borrowers due to the following reasons:

• Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements.
• The borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
• The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks.
• One of the principal objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose, it has to adopt a judicious loan and investment policies which ensure fair and stable return on the funds.

Question 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 industry 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.

Question 9: Analyse the role of credit for development. Answer: The role of credit for development is very significant as mentioned below:

• It helps in increasing economic activities of the borrowers.
• If credit is made available to the poor people on reasonable terms and conditions, they can improve their economic condition. This will help in the over all development.
• Credit may increase the activities in the secondary sector e., manufacturing sector. Thus, with credit people could grow crops, do business, set up small-scale industries. They could set up new industries or trade in goods. Therefore, credit is crucial for the country’s development.

Question 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 moneylender 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.

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.

Question 11: In India, about 80 percent of farmers are small farmers, who need 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 of how the terms of credit can be unfavorable for the small farmer. (d) Suggest some ways by which small farmers can get cheap credit. Answer: (a) The banks might be unwilling to lend to small farmers because the farmers usually take crop loan at the beginning of the season and repay the loan after harvest. Repayment of loan is dependent on the income from farming. And in case of crop failure, repayment becomes impossible. In such cases, the recovery of loan from the small farmers becomes very difficult. The small farmers have to sell part of the land to repay the loan that is why banks do not want to give loans to small farmers.

(b) Small farmers usually borrow from moneylenders or agricultural traders.

(c) In case of failure of crops, it becomes impossible for small farmers to repay the loan by selling their crops. Thus in order to repay, the small farmers sell a part of the land. This leads to worsening of their condition. Sometimes, small farmers give collateral or security against loans. The collateral generally consists of land, building, vehicles, livestock. In case of nonpayment of loan, the lender may sell the collateral to recover loan. Under above conditions, the terms of credit become unfavourable for the small farmers.

(d) Besides banks, the other major source of cheap credit in rural areas are the cooperative societies or cooperatives. Members of a cooperative society, pool their resources for cooperation in certain areas. The cooperative accepts deposits from its members. With these deposits as collateral, the cooperative obtains loan from the bank. These funds are used to provide loans to members.

Question 12: Fill in the blanks:

• Majority of the credit needs of the __________households are met from informal sources.
• __________costs of borrowing increase the debt-burden.
• __________issues currency notes on behalf of the Central Government.
• Banks charge a higher interest rate on loans than what they offer on __________.
• _________is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
• Majority of the credit needs of the poor households are met from informal sources.
• High costs of borrowing increase the debt-burden.
• Reserve Bank of India issues currency notes on behalf of the Central Government.
• Banks charge a higher interest rate on loans than what they offer on deposits .
• Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Question 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 organization.

(ii) Formal sources of credit do not include (a) Banks. (b) Cooperatives. (c) Employers. Answer: (i) (b) (ii) (c)

Multiple Choice Questions

1. Which one of the following statements is most appropriate regarding a transaction made in money? [Delhi 2012] (a) It is the easiest way (b) It is the safest way (c) It is the cheapest way (d) It promotes trade

2. Which one of the following is the new way of providing loans to the rural poor? [Delhi 2012] (a) Co-operative societies (b) Traders (c) Relatives and friends (d) SHG’s

3. Which among the following authorities issues currency notes? [Delhi 2012] (a) Government of India (b) The State Bank of India (c) Central Bank (d) Reserve Bank of India

4. Banks provide a higher rate of interest on which one of the following accounts ? [AI 2012] (a) Saving account (b) Current account (c) Fixed deposits for a long period (d) Fixed deposits for a very short period

5. Which one of the following is the main source of credit for rich urban households in India ? [AI 2012] (a) Formal sector (b) Informal sector (c) Moneylenders (d) Traders

6. Which one of the following is an essential feature of the barter system? (a) It promotes local market. (b) It spreads social field of an individual. (c) It requires double coincidence of wants. (d) It is an easy way.

7. Which one of the following terms is not included against loans? [CBSE CCE 2012] (a) Interest rate (b) Collateral (c) Documentation (d) Lender’s land

8. What is main source of income for banks? [CBSE CCE 2012] (a) Interest on loans (b) Interest on deposits (c) Difference between the interest charged on borrowers and depositors (d) None of these

9. In which one of the following systems exchange of goods is done without use of money? [CBSE (CCE) 2012] (a) Credit system (b) Barter system (c) Banking system (d) Collateral system

10. Which of the following has an essential feature of double coincidence? [CBSE (CCE) 2012] (a) Money system (b) Barter system (c) Financial system (d) Banking system

11. What percent of their deposits do bank hold as cash? [CBSE(CCE)2012] (a) 50 percent (b) 80 percent (c) 15 percent (d) 60 percent

12. Which of the following is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender? [CBSE(CCE)2012] (a) Property (b) Money (c) Collateral (d) Deposits

13. How many members a typical Self-Help Group Should have? [CBSE (CCE) 2012] (a) 14 – 19 (b) 15 – 20 (c) 20 – 25 (d) 25 – 30

14. In a barter system: [CBSE (CCE) 2012] (a) Goods are exchanged for money. (b) Goods are exchanged for foreign currency. (c) Goods are exchanged without the use of money. (d) Goods are exchanged on credit.

15. About what percentage of their deposits is kept as cash by the banks in India? [CBSE (CCE) 2012] (a) 25 % (b) 20 % (c) 15 % (d) 10 %

16. Why do banks keep a small proportion of the deposits as cash with themselves? [Delhi 2011] (a) To extend loan to the poor. (b) To extend loan facility. (c) To pay salary to their staff. (d) To pay the depositors who might come to withdraw money.

17. The currency notes on behalf of the Central Government are issued by whom? [Delhi 2011] (a) State Bank of India (b) Reserve Bank of India (c) Punjab National Bank (d) Central Bank of India

18. Which one of the following is not a feature of money? [AI 2011] (a) Medium of exchange (b) Lack of divisibility (c) A store of value (d) A unit of account

19. Professor Muhammad Yunus is the founder of which one of the following banks? [AI 2011] (a) Cooperative Bank (b) Commercial Bank (c) Grameen Bank (d) Land Development Bank

20. Which one of the following is a modern form of currency? [Foreign 2011] (a) Gold (b) Silver (c) Copper (d) Paper notes

21. The Informal source of credit does not include which one of the following? [Foreign 2011] (a) Traders (b) Friends (c) Cooperative Societies (d) Moneylenders

Additional Questions 22. Anything which is generally accepted by the people in exchange of goods and services (a) Money (b) Barter (c) Credit (d) Loans

23. Both parties agree to sell and buy each other’s commodities (a) Measure of value (b) Store of value (c) Double coincidence of wants (d) Credit

24. Money acts as an intermediate in the exchange process. Which function of money is highlighted here? (a) Measure of value (b) Medium of Exchange (c) Store of value (d) All of them

25. Modern forms of money include (i) Gold (ii) Paper Notes (iii) Coins (iv) Silver (a) (i) and (iii) (b) (ii) and (iv) (c) (iii) and (iv) (d) (ii) and (iii)

26. Mpney is accepted as a medium of exchange because the currency is authorised by (a) Private sector (b) Public sector (c) Government (d) People

27. Deposits in the bank accounts can be withdrawn on demand, therefore these deposits are called (a) Returnable deposits (b) Acceptable Deposits (c) Demand deposits (d) None of the above

28. It is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name it has been made is (a) Paper note (b) Cheque (c) Chit fund (d) Credit card

29. Banks use the major portion of the deposits to (a) Keep as a reserve so that people may withdraw (b) Meet their routine expenses (c) Extend loans (d) Meet renovation of the bank

30. An agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. (a) Credit (loan) (b) Chit fund (c) Bank (d) Cheque

31. Salim, the shoe manufacturer, to meet expenses obtains loans from two sources. (i) Asks leather supplier to supply leather on credit (ii) Bank (iii) Obtains loan in cash as advance payment (iv) Relatives (a) (i) and (iii) (b) (i) and (ii) (c) (iii) and (iv) (d) (ii) and (iii)

32. Swapna is unable to repay the moneylender and she is caught in debt. She has to sell a part of the land to pay off the debt. This situation is an example of (a) Debt-loss (b) Debt-Insecurity (c) Debt-trap (d) All of them

33. Whether credit would be useful or not, depends on (i) Whether there is some support in case of loss (ii) Action of competitors (iii) Market response (iv) Risks in the situation (a) (i) and (iii) (b) (ii) and (iv) (c) (ii) and (iii) (d) (i) and (iv)

34. Terms of credit does not include (a) Interest rate (b) Collateral (c) Cheque (d) Mode of repayment

35. Krishak cooperative functioning in a village near Sonpur has ……………. farmers as members. (a) 2500 (b) 2400 (c) 2350 (d) 2300

36. Formal sector loans include loans from (i) Banks (ii) Moneylenders (iii) Cooperatives (iv) Traders (a) (i) and (iii) (b) (ii) and (iv) (c) (ii) and (iii) (d) (i) and (iv)

37. Contribution of commercial banks as a source of credit for rural households in India in 2003 was (a) 30 % (b) 28 % (c) 25 % (d) 26 %

38. Organisation which supervises the credit activities of lenders in the informal sector. (a) No organization (b) Reserve Bank of India (RBI) (c) State Government (d) Central Government

39. Compared to the formal lenders, most of the informal lenders charge a much …………….. interest on loans (a) Lower (b) Constant (c) Higher (d) No interest

40. Formal sector meets only about …………… of the total credit needs of the rural people (in 2003) (a) one third (b) one fourth (c) half (d) whole

41. It is important that the formal credit is distributed more equally so that (a) Poor can benefit from cheaper loans. (b) Rich can get costly loans. (c) Rich can get cheaper loans. (d) None of the above.

42. After a year or two, if the SHG is regular in savings, it becomes eligible for availing loan from (a) Cooperative societies (b) Moneylenders (c) Bank (d) Traders

43. ……………. help borrowers overcome the problem of lack of collateral and also they are the building blocks of organization of the rural poor. (a) Government (b) Banks (c) Private sector (d) SHGs

44. Almost all of the borrowers of Grameen Bank of Bangladesh are (a) Men (b) Women (c) Senior citizens (d) All of them

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NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit

NCERT Solutions for Class 10 Social Science Economics Chapter 3 Money and Credit are provided here. With these solutions, you will learn the right way to write answers to the questions perfectly in exams. We have updated the  NCERT Solutions for Class 10 Economics  Chapter 3 Money and Credit for the current session so that you can easily score high marks in the exams. You can also download PDF of the solutions and use them whenever you are offline.

Class 10 Social Science Economics Chapter 3 NCERT Solutions

Question 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. Credit involves a certain amount of loan that is taken by a borrower from a lender at a high-interest rate. In case there is a failure, and the borrower faces loss, then he further falls in the trap of credit. This is known as a debt trap. The borrower has to repay the credit along with interest applied by the lender, and he further falls into the trap of credit, increasing the problems for the borrower. The borrower also has to sell a part of his or her land to repay the loan.

Question 2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Answer : In a barter system where goods are directly exchanged without the use of money,the double coincidence of wants is an essential feature. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example, it is no longer necessary for the farmer to look for a book publisher who will buy his cereals at the same time sell his books. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or service which he needs. This is because money acts as a medium of exchange.Medium of exchange is one of the three fundamental functions of money in mainstream economics. It is a widely accepted token which can be exchanged for goods and services.

Question 3. How do banks mediate between those who have surplus money and those who need money?

Answer : Banks mediate between those who have surplus funds (the depositors) and those who are in need of funds (the borrowers) by lending money to people who are in need. People can open accounts in banks and banks make use of that money to fulfil the loan requirements of the people. A higher interest rate is charged for the borrower and that profit is given to the depositor as interest for offering deposits.

Question 4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

Answer : “Reserve Bank of India” and “Guaranteed by the Central Government” is written on the top of a 10 rupee note. Currency in India is issued by the central bank of the country, in the case of India, the Reserve Bank of India is the central bank of the country. This currency is issued on behalf of the central government, and these two are the only authorities which are responsible for issuing notes and currency in India.

Question 5. Why do we need to expand formal sources of credit in India?

Answer : We need to expand formal sources of credit in India due to:

• To reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much.
• Cheap and affordable credit is essential for country’s development. The formal sector still meets only about half of the total credits needs of the rural people.
• Banks and co-operatives should increase their lending, particularly, in rural areas. Rural borrowers depend on informal sources like moneylenders who charge them a high rate of interests, which can sometimes land them into a debt- trap.
• This would lead to higher incomes and many people will be able to borrow cheaply for a variety of needs. They will be able to grow crops, do business, set up small scale industries etc.

Question 6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Answer : The basic behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral. Thus, the main objectives of the SHGs are:

• To organize rural poor especially women into small Self Help Groups. A typical SHGs has 15-20 members.
• To collect savings of their members.
• To provide loans without collateral.
• To provide timely loans for a variety of purposes.
• To provide loans at responsible rate of interest and easy terms.
• Provide a platform to discuss and act on a variety of social issues such as education, health, nutrition, domestic violence etc

Question 7. What are the reasons why the banks might not be willing to lend to certain borrowers?

Answer : The banks might not be willing to lend certain borrowers due to the following reasons:

• Banks require proper documents and collateral as security against loans. Some persons fail to meet these requirements.
• The borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
• The banks might not be willing to lend those entrepreneurs who are going to invest in the business with high risks.
• One of the principal objectives of a bank is to earn more profits after meeting a number of expenses. For this purpose, it has to adopt a judicious loan and investment policies which ensure fair and stable return on the funds.

Question 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 supervises the functions of banks in the following ways:

• It monitors the banks in actually maintaining cash balance.
• It ensures that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
• banks have to submit information to the RBI on their credit activities like how much they are lending, to whom, at what interest rate, etc.

This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. Further, RBI monitoring ensures that banks do not loan more than they are supposed to, as such an action can create a crisis situation. Great Depression of 1930 is an example of such a crises situation.

Question 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.

Question 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.

Question 11. In India, about 80 per cent 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 of how the terms of credit can be unfavorable for the small farmer. (d) Suggest some ways by which small farmers can get cheap credit.

Answer: (a)  The banks might be unwilling to lend to small farmers because the farmers usually take crop loan at the beginning of the season and repay the loan after harvest. Repayment of loan is dependent on the income from farming. And in case of crop failure, repayment becomes impossible. In such cases, the recovery of loan from the small farmers becomes very difficult. The small farmers have to sell part of the land to repay the loan that is why banks do not want to give loans to small farmers.

(b) Apart from bank, the small farmers can borrow from local money lenders, agricultural traders, big landlords, cooperatives and SHGs etc.

(c) When a small scale farmer borrows money from a bank, he has to repay the amount at a fixed rate of interest. For example, if a farmer borrows money from the bank and during the harvest season his crops are ruined, then he shall not be able to repay the amount loaned him by the bank and will further fall into the debt trap.

(d) The small farmers can get cheap credit from different sources like – Banks, Agricultural Cooperatives, and SHGs.

Question 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) Poor (ii) High (iii) Reserve Bank of India (iv) Deposits (v) Collateral

Question 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 organization.

Answer: (b) Members.

(ii) Formal sources of credit do not include

(a) Banks. (b) Cooperatives. (c) Employers.

Answer: (c) Employers

NCERT Solutions for Class 10 Economics Chapter 3 Free PDF Download

Ncert solutions for class 10 economics chapter 3 – money and credit.

Economics is one of the most scoring subjects of Social Science. Also, it the most scoring subject if you are able to clutch the content of the Chapter. The NCERT Solutions for Class 10 Economics Chapter 3 is the simplest form of this Chapter that covers every topic. Besides, it contains all the solved exercises and question/answer of the Chapter. Above all, these exist in PDF file which is easily downloadable and is free.

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CBSE Class 10 Economics Chapter 3 Money and Credit NCERT Solutions

Money refers to the form of exchange in the form of banknotes or coins. Also, it is an important medium of transaction. Whereas, credit refers to a system in which we buy goods and pays for them in the future. Both money and credit interlinks with each other.

Subtopics covered under NCERT Solutions for Class 10 Economics Chapter 3

3.1 Money as a Medium of Exchange- This topic mention how important money is and also what are the uses of money. Also, the topic talks about the barter system where they use their goods for transactions. Besides, the barter system lacks some important factors that relate to exchange.

3.2 Modern form of Money- This topic deals with various forms of money that we use. Also, the topic specifically talks about two important ones:

• Currency- Talks about the modern and traditional coins used for transactions.
• Deposits with Banks- This topic talks about the money which we keep in bank accounts. Also, the topic covers the usefulness and safeness of banks.

3.3 Loan Activities of Banks- In this topic, the bank are further discussed. Also, the topic tells how banks use your money to give loans and earn interests.

3.4 Two Different Credit Situations- This topic highlights two examples of Salim and Swapna and how both of them take a loan from the bank. Also, Salim was able to repay the loan but Swapna failed to do so. Also, how this affects their creditability and situation.

3.5 Terms of Credit- This topic covers the details of the loan agreement and what principles they follow. Also, the Collateral (security against the loan includes land, building, etc.) which the bank demands.

3.6 Formal Sector Credit in India- Discusses the participation of formal sector credit in India. The topic also talks about the various sectors that provide credit to people of the rural or urban population. Also, it explains the position of rural credit by graphs.

3.7 Self-help Groups for the Poor- Is a new method that discusses a group of people made up of volunteer participation that works to provide a loan without any collateral .

Summing Up- This topic sums up all the content of the chapter the important things which we learn from them.

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NCERT Solutions for Class 10 Economics Chapter 3 Money And Credit | Question Answer PDF

NCERT Solutions for Class 10 Economics Chapter 3 Money And Credit has been published by Aglasem. You can now download the Class 10 Economics Ch 3 Questions and Answers PDF here. This NCERT Solutions for Class 10 Economics contains answers of all questions asked in Chapter 3 in textbook, Understanding Economic Development . Therefore you can refer it to solve Money And Credit exercise questions and learn more about the topic.

NCERT Solutions for Class 10 Economics Chapter 3 Money And Credit

Class – Class 10 Subject – Economics Chapter – Ch 3 Chapter Name – Money And Credit Book – Understanding Economic Development Study Material – NCERT Solutions

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NCERT Solutions for Class 10 Economics

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• History – India and the Contemporary World II
• Chapter 1 The Rise Of Nationalism In Europe
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• Chapter 3 The Making Of A Global World
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• Chapter 5 Print Culture And The Modern World
• Civics – Democratic Politics II
• Chapter 1 Power-sharing
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• Geography – Contemporary India II
• Chapter 1 Resources And Development
• Chapter 2 Forest And Wildlife Resources
• Chapter 3 Water Resources
• Chapter 4 Agriculture
• Chapter 5 Minerals And Energy Resources
• Chapter 6 Manufacturing Industries
• Chapter 7 Lifelines Of National Economy
• Economics – Understanding Economic Development
• Chapter 1 Development
• Chapter 2 Sectors Of Indian Economy
• Chapter 3 Money And Credit
• Chapter 4 Globalisation And The Indian Economy
• Chapter 5 Consumer Rights

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NCERT Solutions for Class 10 Social Science Economics Chapter 3 Money and Credit

Textbook Exercises

Question 1. In situations with high risks, credit might create further problems for the borrower. Explain. Answer: 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.

Question 2. How does money solve the problem of double coincidence of wants? Explain with an example of your own. Answer: 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 get money for his service. He goes to the market, and buys a shirt. If, let us suppose, there is no money so to act as instrument of exchange, how will the watch repairer buys-a shirt. He will have to search a person who wants his watch to be repairer, 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 snirts.

Question 3. How do banks mediate between those who have surplus money and those who need Money? Answer: People who have surplus money want (a) 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 to some private individuals and risk their money. On the other hand bank gives money on loan to some one who needs money and take interest from the borrower. Thus the bank solves the problem of one who has surplus money and of those who need money.

Question 4. Look at a 10 rupees note. What is written on top? Can You explain this statement? Answer: 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.

Question 5. Why do we need to expand formal sources of credit in India. Answer: We need to expand the formal sources of credit so-to reduce the dependence on informal sources of credit. Informal sources of credit have with them larger rate of interest.

Question 6. What is the basic idea behind the SHGs for the poor? Explain in your own words. Answer: SHGs stand for Self Help Groups. The basic idea behind the SHGs is that the poor are able to obtain loan from their own self-organised groups, and that too at a lower rate of interest. The SHGs help promote saving among the poor.

Question 7. What are the reasons why the banks might not be willing to lend to certain borrowers? Answer: 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 loan. If it does, it may lose the interest as well as the principal amount.

Question 8. In what ways does the Reserve Bank of India supervise the functioning of bank? Why is this necessary? Answer: 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 informations from the banks the record which the banks possess.
• The RBI supervisor the banks that they 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.

Question 9. Analyse the role of credit for development. Answer: 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 credit 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.

Question 10. 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. Answer: Manav has to arrange money if he wants to set up a business. Even small business requires a lot of money. Money can be arranged through credit. He should take 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.

Question 11. In India, about 80 per cent 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 he terms of credit can be unfavourable for the small farmer. (d) Suggest some ways by which small farmers can get cheap credit. Answer: (a) Small farmers may not be able to pay 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 the informal sources such as moneylenders or traders, the terms of credit would be unfavourable for the small farmers? They will have to pay 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, (if) cooperative/agricultural banks, (iff) cooperative societies, (iv) self-help groups (SHGs).

Question 12. Fill in the blanks: (1) Majority of the credit needs of the ………….. households are met from informal sources. (2) ………….. Costs of borrowing increase the debt burden. (3) …………… issues currency notes on behalf of the Central Government. (4) Banks charge a higher interest rate on loans than what they offer on ………. (5) …………. Is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender. Answer: (1) poor (2) Higher (3) The Reserve Bank of India (4) Deposits (5) Collateral

Question 13. Choose the most appropriate answer. (i) In a SHG most of the decisions regarding savings and loan activities are taken by: (a) Bank (b) Members (c) Non-government organisation (d) Formal sources of credit does not include (a) Banks (b) Cooperatives (c) Employers Answer: (i) Members (ii) Employers.

These Solutions are part of  NCERT Solutions for Class 10 Social Science. Here we have given NCERT Solutions for Class 10 Social Science Economics Chapter 3 Money and Credit.

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Class 10 Economics Chapter 3 | Money and Credit | Important Questions

by Manjusha · Published May 10, 2021 · Updated April 25, 2022

Money as a Medium of Exchange

1. Define double coincidence of wants

In the barter system, when two persons experience a need for each other’s commodity at the same time, it is called double coincidence of wants.

2. How does money act as an intermediate in the exchange process?

Money eliminates the need for double coincidence of wants. For example, a garment maker can sell their garments to a shoemaker for money and then with that money they can buy whatever they want. In the double coincidence of wants system, the garment maker should want shoes and the shoemaker should want garments at the same time for the transaction to take place between them. Money eliminates this need.

3. How does money act as the medium of exchange?

Money acts as the intermediate in the exchange process and thus eliminates the need for double coincidence of wants.

4. Define money.

Money is the medium of exchange used in economic transactions of goods and services.

When goods and services are sold for money, there is no need for the double coincidence of wants. This makes transactions easier and promotes economic activity.

5. How is money used in everyday life? Give examples.

Money plays a crucial role in our day to day life by acting as a medium of exchange. It enables us to buy products or services without having to give another product or service in return.

For example, using money we can buy food and drinks. We use money to pay our school fee or cable subscription. We are paid money for the product or service we provide.  For example, employees receive a monthly salary in money. Thus, money is very much an integral part of our day to day life.

6. How does money solve the problem of double coincidence of wants? Explain with examples.

In the barter system, buying and selling was difficult because it required two people to want each other’s product at the same time. For example, someone may have wheat to sell and another person may have jaggery. For an exchange to take place between them, the person owning wheat should need jaggery and the person owing jaggery should need wheat at the same time. This was not always possible. Money eliminated this need. By giving money anyone could buy anything whenever they wanted and this made the exchange of goods and services easier.

7. What is barter system?

Barter system involves the exchange of one good for another good without the use of money. In this system, two persons should want each other’s commodity at the same time. For example, a shoemaker can sell shoes and buy wheat in exchange. However, this is possible only when the person selling wheat is in need of shoes. Otherwise, he will not sell wheat. This made transactions difficult under the barter system.

Modern forms of money

1. What does currency include?

Currency includes coins and paper notes.

2. How do banks make money from the deposits with them?

Banks lend money to customers and charge an interest on the loan. They offer an interest on the money people deposited with them. However, the rate of interest on the loans they give is always higher than the rate of interests on the deposits they receive. This difference between what is charged from borrowers and what is paid to depositors is their source of income.

3. How does demand deposits benefit people?

People’s deposits are safe with banks and they also get to earn interest on the money they deposited. Better still, they can withdraw the money whenever their want. This is how demand deposits benefit people.

4. What is the main function of Reserve Bank of India?

The Reserve Bank of India issues currency notes on behalf of the central government of India and supervises the functioning of recognized banks in the country.

5. What is a bank?

A bank is a profit making financial institution that accepts deposits from people and pays interest on the deposits and offers loans to the needy.

6. What are the modern forms of money?

Modern forms of money are currency notes and coins.

7. Who issues currency notes in India?

Reserve Bank of India

8. Modern currency has no use of its own but it is used as a medium of exchange. Why?

Modern currency is authorized by the government of the country and hence it is used as a medium of exchange.

In India, currency is issued by the Reserve Bank of India. Indian law legalizes the use of Rupee as the medium of exchange within the country. No person in India can legally refuse a payment made in rupees.

9. Deposits with the banks are beneficial to the depositors as well as to the nation. Explain.

People’s money is safe with the bank. When people deposit their money with the bank, the bank pays an interest on the deposited money. The earned interest enables people to increase their savings.

People can withdraw the money deposited and the accrued interest at any time.

Banks offer the cheque facility to their account holders. Cheques drawn against demand deposits allow people to settle payments without making use of cash.

Banks use a major portion of the money deposited with them to extend loans to people and organisations. Using this money individuals and organisations can engage in economic activities that generate jobs and income.

10. What are the different forms of money?

Different forms of money are paper notes, coins and deposits with banks.

11. What is a demand deposit? List two advantages of demand deposits.

A demand deposit is a deposit made with the bank with the provision to withdraw money as and when the depositor wants. Since these deposits can be withdrawn on demand, they are called demand deposits.

Demand deposits earn interest.

They act as a medium of exchange. Depositors can use the cheque facility to settle payments instead of paying cash.

12. Forms of currency have undergone several changes since early times. Explain.

In the olden days things like grains and cattle were used as a medium of exchange.

Afterwards, metallic coins made of gold, silver and copper became more acceptable forms of currency. Actually, these coins were in use until the last century.

Modern forms of currency include paper notes and coins. Unlike metallic coins, paper notes or coins are not made of expensive materials. Also, modern forms of currency have no use of their own.

13. What is a cheque? What is the advantage of using a cheque for payment?

A cheque is a piece of paper which instructs the bank to pay a specific amount from the account of the person who signed the cheque to the person in whose name the cheque is drawn. In order to write a cheque, a person should have money in their bank account.

Cheques are drawn against demand deposits. The main advantage of making cheque payments is that the bank will also have a record of the transaction. Also, when we pay by cheque, we do not need to exchange any cash.

Loan activities of banks

One mark questions

1. Why do banks maintain cash reserve?

Banks maintain cash reserves so that they can pay the depositors who come to withdraw their money on any given day.

2. Why do banks keep a small proportion of the deposits as cash with themselves?

Banks keep cash reserves to pay the depositors who come to withdraw their money.

3. What is the main source of income for the commercial banks?

Banks charge interests on the loans they give and the deposits they take. The interest charged on the loans is always higher than the interest given on the deposits. This difference between the interest charged and the interest given is the main source of income for commercial banks.

4. What do banks do with a major proportion of their deposits?

Banks use a major proportion of their deposits for giving loans.

5. What percentage of deposits is kept as a cash reserve by the banks for daily transaction in India?

6. What are specified in the loan agreement?

The interest rate, mode of repayment, collateral and necessary documentations are specified in the loan agreement.

7. Mention six sources of credit in rural India?

• Moneylenders – by some estimates 33% of the credit requirements of rural households are fulfilled by them.
• Co-operative societies – co-operative societies satisfied 25% of the credit needs of rural families in 2012.
• Commercial banks – they fulfil about 25% of credit needs of rural families.
• Friends and relatives – about 8% of the credit needs in rural India are satisfied by them.
• Other institutional agencies – about 5% of credit needs of rural families are fulfilled by them.
• Landlords – landlords provide about 1% of the total credit needs in Indian villages.

Two different credit situations

1. What is agricultural credit?

Agricultural credit means money, goods or other services that farmers receive from lenders in return for the promise of future payment.

2. Why do farmers require credit?

Farmers need credit to buy seeds, fertilizers, pesticides and pump sets.

3. What is credit/loan?

Credit or loan refers to an agreement in which the lender gives the borrower money, goods or services in return for the promise of repayment in future.

4. What is a debt trap?

A debt trap is a situation in which the borrower is unable to pay off the money borrowed.

5. Credit can push borrowers into a situation from which recovery is very painful. Explain with examples.

Farmers borrow money at the beginning of the sowing season and then pay off the loan after the crops are harvested. If the harvest is good, they will not have much difficulty repaying the loan. However, if the harvest fails, the farmer will not be in a position to pay the borrowed money back and this throws them into the debt trap.

For example, in the textbook we studied the story of Swapna. When her crop failed, she had to sell off a part of her land to repay the loan. This is an example of credit pushing borrowers into debt traps from which recovery is painful.

6. Explain possible reasons why people apply for loans in rural areas?

(a) Farming involves many expenses. Rural farmers apply for loan so that they can buy seeds, fertilizers, pesticides and pump sets. They borrow money hoping that they will be able to pay off the debt when the crops are harvested.

(b) When crop fails, poor farmers will apply for fresh loans for growing another crop and repaying the previous loans. Getting one loan after another will push the farmer into deep debt.

(c) Landless agricultural labourers often take loans to meet the expenses of day to day living.

(d) A sudden illness in the family or a function like marriage also pushes people to borrow.

7. Explain with examples how credit plays a vital and positive role in the life of a borrower.

Cheap and affordable credit benefits people in many ways. In the case of farmers, it enables them to grow crops and earn livelihood. If interest rate on the loan is not high, the farmer will not have much difficulty in paying it off.

Credit also allows people to start their own small businesses and improve their financial status. In other words, if credit is available at cheap interest rates and on reasonable terms, it improves the standard of living of people by allowing them to engage in economic activities that boost their earnings.

Terms of Credit

1. Mention the terms of credit.

Interest rate, collateral, mode of repayment and necessary documentation are the terms of credit.

2. Define the term collateral.

Collateral is an asset that the borrower owns and is pledged to the lender as a guarantee until the loan is repaid. Collateral could be land, vehicles, livestock, buildings or bank deposits.

3. Why is it difficult for poor people to obtain a loan?

Getting a loan is difficult for poor people as they do not have any collateral and often fail to fulfil documentation requirements.

4. Difference between the terms of credit in formal and informal sectors.

Formal sectors

• RBI supervises the activities of lenders in the formal letter.
• Obtaining a loan in the formal sector is not easy because of the documentation requirements.
• Collateral is required to obtain credit
• Rate of interest is comparatively low.

Informal sector

• There is no one to supervise the lending activities of lenders in the informal sector.
• Collateral is not required.
• Rate of interest is considerably high.

Informal sources of credit are more convenient for poor borrowers because collateral is not required. Also, a borrower can obtain a fresh loan even if they hadn’t paid off previous loans.

5. Compare the different terms of credit for small landless agricultural workers and medium farmers.

Small landless agricultural workers

The interest rate can be as high as 60% per annum.

The labourer pays off the loan by working for the land owner.

No collateral or documentation is required for obtaining this loan.

Medium farmers

The interest rate is 8.5% per annum.

No collateral or documentation is required.

Loans can be repaid at any time within the next three years.

6. Why do lenders ask for collateral while lending?

Collateral is an asset that the borrower owns. While obtaining credit, it is pledged to the lender as guarantee.

If the borrower fails to repay the loan, the lender can sell the collateral to recover the dues.

Banks are profit making organizations. When the banks demand collateral while giving loans, they can reduce their risk of non-performing assets.

7. Mention some items used as collateral.

• Bank deposits
• Land titles
• Shares, LIC policy, debenture

8. What do terms of credit include?

• Terms of credit include the following:
• The interest rate on the amount of money borrowed.
• Collaterals such as land titles, building, bank deposits etc.
• Required documentation
• Mode of repayment: The borrower may repay the loan in monthly, quarterly, half-yearly or yearly instalment. The mode of repayment can vary depending upon the nature of the borrower or lender.

9. Why are moneylenders the main source of credit in rural areas?

Moneylenders are the main source of credit in rural areas because they offer loans without collateral and documentation. Very few rural people own assets that they can pledge as collateral. Also, poor and uneducated people in villages are unable to complete complicated paperwork. Since obtaining a loan from a formal lender like banks require collateral and proper documentation, many rural people find it difficult to get credit from them. Hence, they approach moneylenders in rural areas.

Formal sector credit in India

1. There is a great need to expand formal sources of credit in rural India. Explain.

While obtaining credit from informal sources is easy for rural people, local moneylenders charge hefty interest on the money lent. This pushes people into deep debt. They may also become victims of the unfair means employed by these people to recover their money. Hence, it is important to expand formal sources of credit in rural India. Creditors in the formal sector offer loans at cheap rates. Also, the terms are reasonable.

2. Why is there a great demand for credit or loans?

Loans play a huge role in a country’s development by boosting economic activity.

Loans satisfy the working capital needs of production.

Credit enables farmers to sow crops and business people to start their own ventures.

In our day to day life, we engage in a large number of transactions that involve credit. For example, a sudden illness or a function in the family often force people who do not have sufficient savings to borrow money.

3. How do banks help in the economic development of a country?

Banks take deposits from people who have surplus money and give loans to people who need money. They offer interest on deposits and charge interest on loans.

Having access to credit is crucial for people to start their own businesses or to take care of their day to day expenses.

As much as 25% of the rural credit in India is offered by banks. Thus, they boost economic activities in the country.

Cheap and affordable credit is crucial for the development of any country and banks provide them. This way, banks help poor people to improve their standard of living and businesses to flourish.

4. What is a commercial bank?

A commercial bank is a profit making organization that accepts deposits from people, offers interests on those deposits and extends loan to the needy.

5. In what ways does the Reserve Bank of India supervise the functioning of banks?

In India, all formal sources of credit are supervised by the Reserve Bank of India (RBI)

RBI makes sure that banks maintain 15% of their deposits in cash to repay depositors who come to withdraw money at any time.

RBI makes sure that banks extend credit not only to profit making businesses but also to small scale industries, small farmers and small borrowers.

Banks have to periodically inform RBI about how much money they are lending to whom and at what interest rate.

Self help groups for the poor

1. What is a newer source of credit for rural people, especially women?

Self help groups

2. Why are banks and co-operative societies more reasonable sources of credit?

They offer credit at cheap interest rates and on reasonable terms.

3. How do self help groups (SHGs) benefit rural women?

A Self Help Group is a collective of rural poor, especially women, who pool in their savings.

The SHG encourages women to save money and also help them to get small loans from the group itself to meet their financial needs. This way, it addresses their financial needs and thus also save them from many social issues.

Such collectives not only help women to become financially reliant but also regular meetings of these groups provide them a platform to discuss various problems affecting them and the society in general.

By providing loans to members at affordable rates, SHGs enable women to find working capital for their self-employment initiatives. For example, with this loan, women can buy sewing machines or cattle.

In order to obtain a loan from an SHG, a person does not need collateral or documentation.

4. Self Help Groups can solve the problem of credit in rural areas. Explain

Self Help Groups offer loans to needy members without collateral and documentation. Also, they charge only a small interest on the loans they give. Thus, they enable rural people to have access to credit.

SHGs encourage rural women to save money regularly.

They not only enable women to be financially reliant but also provide them a platform to discuss their financial and family issues like domestic violence.

5. What are Self Help Groups? How do they work? Explain.

A Self Help Group (SHG) is a collective of rural poor especially women formed with the objective of meeting their credit needs. A typical SHG may have 15 to 20 people who regularly meet and save money.

Depending upon the financial situation of the member, they can deposit any amount of money they are capable of saving.

When one of the member needs money, they can take a loan from the group without collateral or documentation.

The interest charged on these loans is less than what moneylenders typically charge and hence SHG loans protect rural people from the debt trap to a great extent.

If the group saves regularly, it is eligible for a loan from a bank. These loans are sanctioned in the name of the group and they are meant to create self employment opportunities for the group members.

6. Why are credit arrangements not fair for all sections of society.

Credit arrangements are not fair for all sections of the society because of the vast disparity in income levels of people. Obtaining credit is harder for poor people as their ability to repay the loan is not good. Hence, lenders in the formal sector hesitate to give loans to poor people. By contrast, rich people who have collateral to pledge and are capable of completing documentation can easily obtain a loan from a bank.

Because of the difficulty in obtaining a loan from a bank, rural poor people turn to moneylenders who charge a hefty interest rate on the loan. This further pushes the rural poor to greater financial difficulties.

Many villages still do not have access to banks. This is another factor that affects the credit availability for rural people.

Class X Economics Solutions

• Class X Economics Chapter 1 Development | Free NCERT Solutions
• Class X Economics Chapter 2 | Sectors of the Indian Economy | Expected Questions | Part 1
• Class X Economics Chapter 2 | Sectors of the Indian Economy | Expected Questions | Comparing the three sectors
• Class X Economics Chapter 2 | Primary, Secondary And Tertiary Sectors
• Class X Economics Chapter 2 | Division of Sectors As Organized And Unorganized
• Class X Economics Chapter 2 | Sectors In Terms Of Ownership
• Class X Economics Chapter 3 | Money and Credit | Important Questions
• Class X Economics Chapter 4 | Globalization and the Indian economy | Important questions

Class X Economics Chapter 5 | Consumer Rights | Important Questions

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• Class X Economics | Chapter 2| Important Questions From Primary, Secondary, Tertiary Sectors
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Case Study Questions Class 10 Economics Money and Credit

Case study questions class 10 economics chapter 3 money and credit.

CBSE Class 10 Case Study Questions Economics Money and Credit. Term 2 Important Case Study Questions for Class 10 Board Exam Students. Here we have arranged some Important Case Base Questions for students who are searching for Paragraph Based Questions Money and Credit.

CBSE Case Study Questions Class 10 Economics Money and Credit

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Class 10 Economics Chapter 3 Extra Questions and Answers Money and Credit

In this page, you can find CBSE Class 10 Economics Chapter 3 Extra Questions and Answers Money and Credit Pdf free download, NCERT Extra Questions for Class 10 Social Science  will make your practice complete.

Money and Credit Class 10 Extra Questions and Answer Economics Chapter 3 Very Short Answers Type

Question 1. Recognise the situation when both the parties in a barter economy have to agree to sell and I buy each other’s commodities. What is it called? Answer: It is called double coincidence of wants.

Question 2. Amit is using his money to buy assets like house, commercial land and machines. Write what is he actually doing? Answer: He is investing his money with a hope of earning profits from these assets.

Question 3. Why do banks ask for collateral while giving credit to the borrower? Answer: If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.

Question 4. What is the meaning of ‘barter system’? Answer: To exchange goods, services, property, etc. for other goods, etc. without using money.

Question 5. What is meant by double coincidence of wants? Answer: When both the parties in a barter system have to agree to sell and buy each other’s commodities, it is called double coincidence of wants.

Question 6. How does money act as a medium of exchange? OR How does the use of money make it easier to exchange things? Answer: A person holding money can easily exchange it for any commodity or service that he/she wants.

Question 7. What is a cheque? Answer: A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued.

Question 8. What is the source of income for the banks? Answer: Banks charge a higher interest rate 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 the banks.

Question 9. What did Indians use as money in the early ages? Answer: In the early ages, they used grains and cattle as money.

Question 10. What do modern forms of money include? Answer: Modern forms of money include currency i.e. paper notes and coins.

Question 11. The modern currency is without any use of its own. Then, why is it accepted as a medium of exchange? Answer: It is accepted as a medium of exchange because the currency is authorised by the government of the country.

Question 12. What are called demand deposits? Answer: The deposits in the bank accounts can be withdrawn on demand. Hence, these deposits are called demand deposits.

Question 13. What is an essential characteristic of money? Answer: Money is a medium of exchange.

Question 14. What do people do with surplus money? Answer: They deposit it with the banks by opening a bank account in their name.

Question 15. What do banks do with the money we deposit there? Answer: Banks keep a small proportion of their deposits as cash with themselves and use the major portion to extend loans.

Question 16. Why do people in rural areas demand for credit? Give one reason. Answer: People in rural areas demand for credit for the purpose of crop production.

Question 17. What is called debt trap? Answer: When credit pushes the borrower into a situation from which recovery is very painful, it is called debt trap.

Question 18. What are the terms of credit? Answer: Interest rate, collateral and documentation requirement, and the mode of repayment together are called the terms of credit.

Question 19. What prevents the poor from getting bank loans? Answer: Absence of collateral is one of the main reasons which prevents the poor from getting bank loans.

Question 20. What are the two benefits of deposits with the banks? Answer:

• People’s money is safe with the banks and it earns an amount as interest.
• People also have the provision to withdraw the money as and when they require.

Question 21. How does the facility of cheques against demand deposits help one? Answer: The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.

Question 22. What do you mean by ‘easy terms of credit’? Answer: Easy terms of credit include low interest rate, easy conditions for repayment and less collateral and documentation requirements.

Money and Credit Class 10 Extra Questions and Answer Economics Chapter 3 Short Answers Type

Question 1. Dhananjay is a government employee and belongs to a rich household whereas Raju is a construction worker and comes from a poor rural household. Both are in need and wish to take loan. Create a list of arguments explaining who between the two would successfully be able to arrange money from a formal source. Why? Answer: Dhananjay will be able to get loan from a formal source. Arguments

• Dhananjay is a government employee and belongs to a rich household.
• He has capacity to repay the loan within given frame of time.
• Since he is well-off, he has enough collateral which he can use as a guarantee to the bank until the loan is repaid.

Question 2. Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas? Explain. Answer: (i) Banks and cooperative societies can help people in obtaining cheap and affordable loans.

(ii) This will empower people in a variety of ways. They could grow corps, do business, set up small- scale industries etc. They could set up new industries or trade in goods.

(iii) Loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces. Cheap and affordable credit is also important for the country’s development.

Question 3. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reasons. Answer: (i) Modern forms of money include currency-paper notes and coins. Unlike the things that were used as money earlier, the modern currency is without any use of its own. But it is accepted as a medium of exchange because the currency is authorised by the government of the country.

(ii) In India, the Reserve Bank of India issues currency notes on behalf of the Central Government. As per Indian law, no other individual or organisation is allowed to issue currency.

(iii) Moreover, the law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees.

Question 4. Mention some of the uses of money. Answer: (i) The use of money spans a very large part of our daily life. We make several transactions involving money every day. In many of these transactions, goods are being bought and sold with the use of money. In some of these transactions, services are being exchanged with money.

(ii) A person holding money can easily exchange it for any commodity or service that he/she might want. Thus everyone prefers to receive payments in money and then exchange the money for things that they want.

(iii) In an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. It is no longer necessary for both parties to agree to sell and buy each other’s commodities.

Question 5. “Money has made transactions easy.” Justify. Answer: (i) Money is something that can act as a medium of exchange in transactions. It serves as a unit of value. A person holding money can easily exchange it for any commodity or service that he/she might want.

(ii) People can deposit extra money with banks. They deposit it with the banks by opening a bank account in their name. They also have the provision to withdraw the money as and when they require.

(iii) We can make payments through cheques instead of cash. For payment through cheques, the payer who has an account with the bank, makes out a cheque for specific amount.

Question 6. How does money solve the problem of double coincidence of wants? Explain with an example. Answer: In the barter system, commodities are exchanged with commodities without the use of money. In this type of exchange, both parties have to agree to sell and buy each other’s commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. Money solves the problem of double coincidence of wants by acting as a medium of exchange.

A person holding money in hand can easily exchange it for any commodity or service that he/she wants. We can better understand it with an example. Suppose a green grocer wants a mobile phone but the owner of the mobile phone wants a wrist watch. In such a situation, the green grocer can use money to get the mobile phone. In the same way, the mobile phone owner too will use money to get the wrist watch.

Both parties are independent to buy the things of their need because both have money. In this way, money solves the problem of double coincidence of wants.

Question 7. Why do lenders ask for collateral while lending? Give any three reasons. Answer: If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment. It is, therefore, lenders ask for collateral while lending.

Question 8. Explain with an example how credit plays a vital and positive role for development. Answer: (i) A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit means loan which the borrower gets from the lender in the form of money, goods or services in return for the promise of future payment.

(ii) Credit can play a vital and positive role in a certain situation. Suppose a small businessman obtains credit to expand his business. If he gets success in his goal and makes a good profit, he will repay the money in time that he had borrowed.

(iii) He will then spend the surplus money in expanding his business. If this continues for a few years, he will become an established businessman. Here, credit helps to increase earnings and therefore the person is better off than before.

Question 9. How is money used as a medium of exchange? Explain with examples. Answer: (i) Modern forms of money include currency-paper notes and coins. Unlike the things that were used as money earlier, the modern currency is without any use of its own. But it is accepted as a medium of exchange because the currency is authorised by the government of the country.

Question 10. What is money? Why is modern currency accepted as a medium of exchange? Answer: Money is a medium of exchange in transactions. A person holding money can easily exchange it for any commodity or service that he/she might want.

In India, the Reserve Bank of India issues currency notes on behalf of the Central Government. As per Indian law, no other individual or organisation is allowed to issue currency.

Question 11. How do demand deposits facilitate transactions? Answer: Demand deposits share the essential features of money. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a medium of payment, along with currency, they constitute money in the modern economy.

Question 12. How can money easily exchange it for goods or services? Give example to explain. Answer: (i) The use of money spans a very large part of our daily life. We make several transactions involving money every day. In many of these transactions, goods are being bought and sold with the use of money. In some of these transactions, services are being exchanged with money.

Money and Credit Class 10 Extra Questions and Answer Economics Chapter 3 Long Answers Type

Question 1. Compare and contrast the conditions for taking loan from formal and informal sources. Suggest an alternative source that you think is best for the rural poor. Answer: Formal

• Banks, Co-operatives
• Low rate of interest
• No unfair means adopted to take back the money if no re-payment is done.
• Supervised by RBI
• Have to adhere to terms of credit as collateral rate of interest. Mode of payment and documents.
• Moneylender, relatives, landlords
• High rate of interest
• Other conditions like cultivate land during harvest time etc.
• Unfair measures
• Not supervised

Self Help Groups is an alternative source. They help borrowers overcome the problem of lack of collateral. The borrowers can get timely loans for a variety of purposes and at a reasonable interest rate. Moreover, SHGs are the building blocks of organisation of the rural poor. Not only does it help women to become financially self-reliant, the regular meetings of the group provide a platform to discuss and act on social issues like health, nutrition, etc.

Question 2. How do banks play an important role in the economy of India? Explain. OR How are deposits with the banks beneficial for an individual as well as for the nation? Explain with examples. Answer: (i) Banks provide people the facility to deposit their surplus money by opening a bank account in their name. Banks also pay an amount as interest on the deposits. In this way, people’s money is safe with the banks and it earns an amount as interest. Thus, banks add to the income of the family.

(ii) Banks use the major portion of the deposits to extend loans to the needy. There is a huge demand for loans for various economic activities. Banks, thus, mediate between those who have surplus money and those who are in need of this money.

(iii) Banks give loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries, to small borrowers, etc. Thus, they empower these people and help indirectly in the country’s development.

(iv) The rate of interest that banks demand from the borrowers is always cheap and affordable. This helps people to improve their condition. Banks also give loans to industrialists. These industrialists use these loans to expand their industries. In this way, they contribute in country’s development.

(v) By employing a large number of people banks solve the problem of unemployment to a great extent.

Question 3. What is credit? How does credit play a vital and positive role? Explain with an example. Answer: Credit means loan. It refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

(i) A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit means loan which the borrower gets from the lender in the form of money, goods or services in return for the promise of future payment.

Question 4. What are the various sources of credit in rural areas? Which one of them is the most dominant source of credit and why? Answer: The various sources of credit in rural areas are-moneylenders, cooperative societies/banks, commercial banks, relatives and friends, institutional and non-institutional agencies and landlords, etc. Moneylenders constitute an informal source of credit. They are the most dominant source of credit in rural areas. There are various reasons behind it-

• They know the borrowers personally and hence, are often willing to give a loan without collateral.
• The borrowers can, if necessary, approach the moneylenders even without repaying their earlier loans.
• Although these moneylenders charge very high rate of interest and keep no records of the transactions, they are easily accessible.

Question 5. What are the two categories of sources of credit? Mention four features of each. Answer:

Money and Credit Class 10 Extra Questions and Answer Economics Chapter 3 Higher Order Thinking Skills (HOTS) Questions

Question 1. Why is cheap and affordable credit important for the country’s development? Answer: People need credit (loan) to carry out various economic activities. Some want to do business, some want to buy new houses, some want to set up new industries or trade in goods, and so on. Cheap and affordable credit will help these people to grow in their fields which will ultimately contribute in the county’s development.

In rural India, cheap and affordable credit helps in the development of agriculture and other related activities. We know that a bulk of farmers are poor. They do not have money to buy seeds, fertilisers, and expensive pesticides. Credit enables them to carry out these activities.

Question 2. What are modern forms of money? Why is the ‘rupee’ widely accepted as a medium of exchange? Give two reasons. Answer: Modern forms of money include currency-paper notes and coins. The rupee is widely accepted as a medium of exchange because-

• The law legalises the use of rupee as a medium of payment that cannot be refused in setting transactions in India.
• No individual in India can legally refuse a payment made in rupees.

We can see that 85 percent of the loans taken by poor households in the urban areas are from informal sources. When we compare this with the rich urban households, we find that only 10 percent of their loans are from informal sources, while 90 percent are from formal sources.

Money and Credit Class 10 Extra Questions and Answer Economics Chapter 3 Value-based Questions (VBQs)

Question 1. What are Self-Help Groups? How do they work? Do you think that SHGs fulfil the expectations of the poor people? Answer: Self-Help Groups (SHGs) is a small voluntary association of poor people, preferably from the same socio-economic background. They come together for the purpose of solving their common problems through self-help and mutual help. The SHG promotes small savings among its members. A typical SHG has 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 on the ability of the people to save. Members can take small loans from the group itself to meet their needs. The group charges a little interest. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.

Loan is sanctioned in the name of the group and is meant to create self¬employment opportunities for the members. Most of the important decisions regarding the savings and loan activities are taken by the group members. It is also the group which is responsible for the repayment of the loan.

Any case of non-repayment of loan by any one member is followed up seriously by other members. It is this feature of SHG that banks are ready to lend to the poor, even though they have lack of collateral or any other asset. SHGs certainly fulfil the expectations of the poor people. Because the groups solves the economic problem of the poor to some extent the poor people can take loan at less interest rate and do their work according.

Question 2. ‘Cheap and affordable credit is essential for poor households both in rural and urban areas’. In the light of the above statement explain the social and economic values attached to it. Answer: Social values attached to credit: (i) Cheap and affordable credit plays an important role in eradicating poverty and empowering people in different ways.

(ii) Ignorant people are saved from the corrupt moneylenders. This develops self-reliance and financial security among them. They enjoy a certain amount of freedom which was otherwise impossible.

Economic values attached to credit:

(i) Cheap and affordable credit helps people in carrying out their various economic activities. They could grow crops, do business, set up small-scale industries, etc. They could set up new industries or trade in goods.

(ii) Cheap and affordable credit also helps in transforming human beings into valuable resources. Empowered people can contribute fully in the development of the country.

Question 3. Describe any four advantages of Self-Help Groups for the poor. Answer: Self-Help Groups (SHGs) is a small voluntary association of poor people, preferably from the same socio-economic background. They come together for the purpose of solving their common problems through self-help and mutual help. The SHG promotes small savings among its members. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly.

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NCERT Solutions For Class 10 Economics Chapter-3: Money and Credit

NCERT Solutions For Class 10 Economics Chapter 3 Money and Credit – This article includes free NCERT Solutions For Class 10 Economics Chapter 3 Money and Credit to help students of Class 10 learn the solutions and ace their exams.

It has been developed by the subject matter experts at GFG, according to the  latest CBSE Syllabus 2023-24 , and guidelines to help the students of Class 10 create a solid conceptual base for Class 10 Economics Chapter 3, Money and Credit.

The solutions to all the exercises in Class 10 Economics Chapter 3, Money and Credit of your NCERT textbook, have been collectively covered in NCERT Solutions Class 10 Social Science.

NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit

The solutions for Chapter 3 Money and Credit are provided below, and students can refer to NCERT Solutions for Class 10 for other subjects as well.

Exercise Page No 52

1. in situations with high risks, credit might create further problems for the borrower. explain..

In high-risk situations, borrowers may struggle to meet their repayment obligations due to uncertainties such as economic downturns, market volatility, or unexpected events. When borrowers default on their loans, it can lead to a chain reaction of financial distress, affecting lenders, investors, and the broader economy. This risk amplification is particularly pronounced in scenarios where credit is extended without adequate assessment of the borrower’s ability to repay or when financial institutions engage in reckless lending practices. Consequently, rather than mitigating risks, credit in such situations can increase financial instability and create systemic problems for both borrowers and lenders.

2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.

In economics, the double coincidence of wants refers to the challenge of finding a trading partner who not only has what you want but also wants what you have. Money solves this problem by acting as a medium of exchange, enabling individuals to trade goods and services without requiring a direct match of preferences. For example, consider a scenario where Alice wants to buy a bicycle but only has chickens to offer in exchange. If she cannot find someone who wants chickens and has a bicycle to trade, she would face difficulty acquiring the bicycle. However, if money is introduced into the system, Alice can sell her chickens for money and then use that money to purchase the bicycle from a different seller. In this way, money facilitates transactions by eliminating the need for a double coincidence of wants.

3. How do banks mediate between those who have surplus money and those who need money?

Banks serve as intermediaries between those who have surplus money (savers or depositors) and those who need money (borrowers). They facilitate this mediation through the process of financial intermediation, which involves the following steps: Accepting Deposits: Banks collect deposits from individuals and businesses who have surplus funds and are looking for a safe place to store their money. These deposits can be in the form of savings accounts, current accounts, fixed deposits, etc. Lending Money: Banks use the funds deposited by savers to extend loans and credit to individuals, businesses, or other entities who need financial assistance. This includes various types of loans such as personal loans, home loans, business loans, etc. Charging Interest: Banks charge a higher interest rate on the loans they provide compared to the interest rate they offer on deposits. The difference between the interest earned on loans and the interest paid on deposits serves as the bank’s profit margin. Managing Risks: Banks play a crucial role in assessing the creditworthiness of borrowers and managing the associated risks. They evaluate loan applications, determine the terms and conditions of lending, and implement risk management practices to minimize the likelihood of defaults. Providing Other Financial Services: In addition to deposit-taking and lending, banks offer a wide range of financial services such as investment management, insurance, foreign exchange services, etc., to meet the diverse needs of their customers.

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

On top of a 10 rupee note, the statement “Reserve Bank of India” is written. This indicates that the currency is issued and guaranteed by the Reserve Bank of India (RBI), which is the central bank of the country. The statement signifies that the currency note is a legal tender authorized by the central monetary authority of India. It confirms that the note holds value and can be used as a medium of exchange for goods and services within the country. Additionally, it reflects the trust and confidence placed in the Reserve Bank of India to maintain the stability and integrity of the currency system, ensuring its acceptance and usability in the economy.

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

Expanding formal sources of credit in India is essential for several reasons: Financial Inclusion: Formal credit sources extend banking services to underserved areas and marginalized communities. Reduced Dependence: Reduces reliance on exploitative informal lenders, mitigating debt traps and improving financial well-being. Economic Growth: Facilitates investment in productive activities, fostering entrepreneurship, job creation, and overall economic development. Financial Stability: Regulated institutions adhere to prudent practices, reducing systemic risks and ensuring the stability of the financial system. Inclusive Growth: Enables marginalized segments to access financial services, promoting equitable distribution of wealth and opportunities for all.

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Self-Help Groups (SHGs) for the poor are based on the fundamental principle of collective empowerment and mutual support among individuals from economically disadvantaged backgrounds. The basic idea is to bring together a small group of individuals, from similar socio-economic backgrounds, to pool their resources, share knowledge, and support each other in their socio-economic efforts. Through regular meetings and contributions, members of SHGs build a sense of solidarity and trust, enabling them to access financial services, undertake income-generating activities, and address common issues such as savings mobilization, skill development, and social empowerment. SHGs empower participants to take control of their financial and social lives, promoting self-reliance, resilience, and community development.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?

Banks might be unwilling to lend to certain borrowers due to various reasons: Lack of financial documentation or incomplete/inaccurate information provided by borrowers. Economic uncertainty leading to cautious lending practices by banks. Risks associated with specific industries or sectors. Regulatory compliance requirements that restrict lending to certain borrowers. Inability to provide adequate collateral to secure the loan. High existing debt burden of borrowers. Legal or compliance issues that pose risks to the bank.

8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

The Reserve Bank of India (RBI) supervises the functioning of banks through various measures: Licensing: RBI grants licenses to banks for establishment and operation, ensuring they meet regulatory requirements. Prudential Regulations: RBI sets prudential norms, guidelines, and regulations regarding capital adequacy, asset quality, liquidity, and risk management for banks to follow. On-site Inspections: RBI conducts regular on-site inspections of banks to assess their financial health, risk management practices, compliance with regulations, and internal controls. Off-site Surveillance: RBI monitors banks’ activities through off-site surveillance mechanisms, analyzing financial statements, regulatory reports, and other relevant data. Prompt Corrective Action (PCA): RBI initiates PCA measures for banks facing financial distress or breaching regulatory thresholds to prevent further deterioration and ensure corrective actions are taken. Supervisory Reviews: RBI conducts supervisory reviews to evaluate banks’ governance structures, internal controls, and adherence to regulatory requirements. Enforcement Actions: RBI takes enforcement actions against banks for non-compliance with regulations, including imposing fines, penalties, or license revocation. Policy Framework: RBI develops and implements policies and guidelines related to banking operations, risk management, and financial stability to ensure the soundness and stability of the banking system. Supervision by the RBI is necessary to: Ensure Financial Stability : Supervision helps maintain the stability and integrity of the banking system, safeguarding depositors’ funds and maintaining public trust in the financial system. Mitigate Risks: Supervision identifies and mitigates risks associated with banks’ operations, preventing systemic failures and contagion effects on the economy. Protect Depositors: Supervision ensures banks adhere to prudential norms and regulations, protecting depositors’ interests and promoting financial inclusion and consumer protection. Uphold Confidence: Effective supervision enhances market confidence, investor trust, and credibility in the banking sector, contributing to overall economic growth and development.

9. Analyse the role of credit for development.

Role of Credit for Development: Economic Growth: Credit facilitates investment in productive activities such as infrastructure, agriculture, manufacturing, and services, stimulating economic growth and development. Entrepreneurship and Innovation: Access to credit enables entrepreneurs and small businesses to finance new ventures, expand operations, innovate, and create employment opportunities, fostering entrepreneurship and innovation. Poverty Alleviation: Credit allows individuals and households to invest in education, healthcare, housing, and livelihoods, lifting them out of poverty and improving their standard of living. Infrastructure Development: Credit supports the development of infrastructure projects such as roads, bridges, power plants, and telecommunications networks, enhancing connectivity, productivity, and competitiveness. Agricultural Development: Credit provides farmers with funds to purchase inputs, equipment, and technology, improving agricultural productivity, income levels, and food security. Industrialization: Credit facilitates industrial growth by financing the establishment, expansion, and modernization of industries, promoting industrialization, job creation, and economic diversification. Financial Inclusion: Credit expands access to financial services for marginalized and underserved populations, including women, rural communities, and small-scale enterprises, promoting financial inclusion and empowerment. Human Capital Development: Credit supports investments in human capital through education loans, skill development programs, and healthcare financing, enhancing workforce productivity, competitiveness, and socio-economic development.

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.

Manav’s decision to borrow from a bank or a moneylender depends on various factors: Interest Rate: Manav will compare interest rates, opting for the lower one to minimize borrowing costs. Repayment Terms: He will assess repayment terms, favoring the option with more favorable and manageable terms. Loan Amount: Manav will consider the loan amount needed and the source capable of providing it. Collateral Requirement: He will evaluate his ability to provide collateral and associated risks. Documentation: Manav will consider the paperwork and formalities required by each source. Reputation: He will assess the reputation, credibility, and reliability of both options. Legal Considerations: Manav will consider legal and regulatory implications, favoring options with proper legal protection. Overall, Manav will weigh these factors carefully and choose the borrowing option that best suits his financial needs, preferences, and circumstances while ensuring affordability, reliability, and legal compliance.

11. In India, about 80 per cent 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..

a) Banks might be unwilling to lend to small farmers due to several reasons: Lack of Collateral: Small farmers often lack sufficient collateral to secure loans, making them risky borrowers in the eyes of banks. High Transaction Costs: The cost of processing small loans for small farmers may be high relative to the loan amount, making it unprofitable for banks. Limited Financial Literacy: Small farmers may have limited financial literacy and documentation, making it challenging for banks to assess their creditworthiness. Seasonal Nature of Agriculture: Agriculture is subject to seasonal risks and uncertainties, which may deter banks from extending credit to small farmers.

(b) Other sources from which small farmers can borrow include: Cooperative Societies: Agricultural cooperatives and self-help groups may provide credit to their members at reasonable rates. Microfinance Institutions: Microfinance institutions specialize in providing financial services to underserved populations, including small farmers. Moneylenders: In rural areas, small farmers may resort to borrowing from informal sources such as moneylenders, albeit at higher interest rates.

(c) Example: The terms of credit can be unfavorable for small farmers due to high-interest rates, short repayment periods, and stringent collateral requirements. For instance, a small farmer may borrow from a moneylender at a high-interest rate of 36% per annum, with weekly repayments and the risk of losing their land as collateral in case of default. Such terms can trap farmers in a cycle of debt and lead to distress.

(d) Ways small farmers can access cheap credit: Strengthening Rural Banking: Banks can establish rural branches and mobile banking facilities to reach small farmers in remote areas, reducing transaction costs and improving accessibility. Government Subsidies: Government schemes offering subsidized credit to small farmers, such as the Kisan Credit Card (KCC) scheme, can provide cheap credit. Enhancing Financial Inclusion: Promoting financial literacy and awareness among small farmers, facilitating their access to formal financial services and improving their creditworthiness. Strengthening Agricultural Cooperatives: Supporting and strengthening agricultural cooperatives to provide affordable credit and other financial services to their members.

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..

(i) Majority of the credit needs of the rural households are met from informal sources. (ii) High costs of borrowing increase the debt-burden. (iii) Reserve Bank of India (RBI) 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 a shg most of the decisions regarding savings and loan activities are taken by.

(b) Members.

(c) Non-government organisation.

(ii) Formal sources of credit does not include

(b) Cooperatives.

(c) Employers.

(i) Members (ii) Employers

Chapter 3 Money and Credit Summary

Chapter 3, “Money and Credit,” examines the role of money and credit in the economy. It discuss the functions of money, such as a medium of exchange, unit of account, and store of value. Additionally, it discusses the importance of formal and informal credit sources, including banks and moneylenders, in meeting the credit needs of various sections of society. The chapter also examines the working of the formal credit system, challenges faced by borrowers, and measures to promote financial inclusion and access to affordable credit.

Important Topics Discussed in the Chapter

• Terms of Credit
• Credit Creation
• Difference between Formal and Informal Sources of Credit 
• Money Multiplier
• Money and Banking
• Classification of Money
• Two different Credit Situations

FAQs on NCERT Solutions For Class 10 Economics Chapter 3 Money and Credit

What is the relationship between credit and money.

Credit facilitates the circulation and utilization of money by providing access to funds beyond one’s immediate financial resources.

Why is money called credit?

Money is referred to as credit because it represents a promise or obligation to pay, functioning as a medium of exchange and a store of value within the economy.

What is called credit?

Credit is the provision of funds or resources by one party to another, typically with the expectation of repayment along with interest or fees.

Can credit mean money?

Credit can represent purchasing power or monetary value that is extended to individuals or entities, akin to money, facilitating transactions and economic activities.

What is the role of credit in money?

The role of credit in money lies in its ability to expand the effective money supply by allowing individuals and businesses to access funds beyond their immediate cash holdings, thus facilitating economic transactions and activity.

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Money and Credit Class 10 Notes CBSE Economics Chapter 3 (Free PDF Download)

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Money and Credit Class 10 Notes Economics Chapter 3 - PDF Download

All contemporary sorts of money and their relationships with the financial system are thoroughly explored in Vedantu's Chapter 3 Money and Credit Class 10 Notes. Another section of the chapter Money and Credit discusses the concept "credit" in detail, as well as the impact of credit on borrowers in various scenarios.

Other pertinent themes in this respect are also included in Class 10 Chapter 3 Money and Credit Notes PDF, which has been developed by specialists and can be downloaded for free, and will undoubtedly aid Class 10 CBSE students in the test.

Related Chapters

Access Class 10 Economics Chapter 3 - Money and Credit

Money as a medium of exchange.

Money is referred to as a medium of exchange because it serves as an intermediary in the exchange process. 

A person who has money can readily swap it for whatever commodity or service he or she desires. 

Double Coincidence of Wants: It occurs when both parties agree to sell and buy each other's commodities at the same time in the trade. Double coincidence of wants is a key element of the barter system.

Modern Forms of Money

Indians utilised wheat and livestock as currency in the past. Following that came the use of metallic coinage, such as gold, silver, and copper coins, which lasted well into the twentieth century. Currency - paper notes and coins – are now modern forms of money. The current kinds of money - currency and deposits – are inextricably related to the modern banking system's operation.

Currency: The Reserve Bank of India, on behalf of the Indian government, issues currency notes. No other person or organisation is permitted to print money. In India, the rupee is generally recognised as a medium of exchange.

Deposit in Banks: People might also keep their money in the form of bank deposits. People put their surplus money in the bank by opening a bank account in their own name. Banks not only accept deposits, but they also pay interest on them. Deposits in bank accounts that can be withdrawn on demand are referred to as demand deposits. Cheques are used instead of cash to make payments.

Cheques: It's a piece of paper that instructs the bank to transfer a specified amount from a person's account to the person named on the check.

Loan Activities of Banks

Banks only hold a small amount of their deposits in cash on hand. In India, banks now maintain approximately 15% of their deposits in cash. This is retained as a reserve to pay depositors who may come to the bank on any given day to withdraw money.

The majority of deposits are used to extend loans by banks. Loans for numerous economic activities are in high demand. On loans, banks charge a greater interest rate than they do on deposits.

Banks' major source of income is the difference between what they charge borrowers and what they pay depositors.

Two Different Credit Situations

A credit (loan) arrangement is one in which the lender provides money, products, or services to the borrower in exchange for the promise of future payment.

There are two types of credit situations: one is where you have a lot of money and the other is where

i. In the first scenario, a person borrows money for production purposes with the promise of repaying the loan at the end of the year when the work is accomplished. And by the end of the year, he or she has made a big profit from manufacturing operations and is able to repay the loan. As a result, the person is in a better position than previously.

ii. In the second scenario, a person borrows money for production purposes with the promise of repaying the loan at the end of the year, when the production job is accomplished. And by the end of the year, he or she has fallen into a financial trap. As a result, that person is in a worse situation than before.

Terms of Credit

Every loan agreement stipulates an interest rate that must be paid to the lender in addition to the principal repayment. Lenders also want collateral (security) in exchange for loans.

1. Collateral is an asset that a borrower holds, such as land, a building, a vehicle, livestock, or bank savings, that the borrower uses as a guarantee to a lender until the loan is returned. If the borrower fails to repay the loan, the lender has the authority to sell the asset or collateral to recover payment.

2. The terms of credit include the interest rate, collateral and documentation requirements, as well as the form of repayment. It varies depending on the lender's and borrower's personalities.

Formal Sector Credit in India

Credit that is both cheap and accessible is critical for the country's prosperity. The numerous forms of loans can be divided into the following categories:

1. Formal Sector Loans: Loans from the formal sector include those from banks and cooperatives. The Reserve Bank of India (RBI) is in charge of overseeing the operation of formal loan sources. Banks must report to the RBI how much they are lending, to whom, and at what interest rate, among other things.

2. Informal Sector Loans: Loans from the informal sector include those from moneylenders, traders, employers, family, and friends, among others. There is no regulatory body that oversees the lending activities of informal lenders. There is no one to stop them from obtaining their money by unethical means.

Formal and Informal Credit

Formal Credit: The RBI oversees the operation of formal sources of loans, which includes banks and cooperatives. To ensure that the bank maintains a minimum cash balance and that loans are given not just to profit-making businesses and dealers, but also to small growers, small scale industries, small borrowers, and so on. Banks are required to report their actions to the RBI on a regular basis.

Informal Credit: Money lenders, traders, employers, relatives, and friends are just a few examples. There is no one in charge of monitoring their credit operations. They can charge any interest rate they want. There is no one to stop them from obtaining their money by unethical means.

Self Help Groups for the Poor

Poor households continue to rely on informal sources of financing for the following reasons:

In rural India, banks are not widely available.

Even if banks are present, obtaining a bank loan is substantially more difficult because adequate documentation and collateral are required.

Self-Help Groups were formed to address these issues (SHGs). SHGs are small groups of poor people who encourage their members to save small amounts of money. A typical SHG includes 15-20 members who meet and save on a regular basis, usually from the same neighbourhood. 

Advantages of Self Help Group (SHG):

It assists borrowers in overcoming the lack of collateral issues.

SHGs are the foundations of the rural poor's organisation.

People can receive loans on schedule and at a fair interest rate for a number of objectives.

It assists women in becoming financially self-sufficient.

The group's frequent meetings give a forum for discussing and taking action on a variety of social concerns such as health, nutrition, domestic violence, and so on.

Important Questions and Answers

1. How does the use of money make it easier to exchange things?

Ans: Money is frequently characterised in terms of its three purposes or services. Money functions as a means of exchange, a store of value, and a monetary unit.

Money's primary role is to facilitate transactions as a medium of exchange. All transactions would have to be handled via barter, which is the direct exchange of one commodity or service for another in the absence of money.

Money must retain its worth over time in order to function as a medium of trade; it must be a store of value. Money would not solve the double coincidence of desires problem if it could not be stored for a period of time and still be valued in exchange. As a result, it would not be adopted as a medium of exchange.

Money also serves as a unit of account, allowing for the measurement of the worth of goods and services traded.

2. Can you think of some examples of goods/services being exchanged or wages being paid through barter?

Ans:  

1. In rural regions, food grains are frequently swapped for other crops. Even in certain government programmes, workers are paid in kind rather than cash, for example, 5 kg of wheat every day of work.

2.  When money devalues rapidly i.e., hyperinflation, such as during the Venezuelan crisis during the Bolivarian Revolution, barter systems are occasionally used.

3. In exchange for their military duty, Roman soldiers were paid salt.

3. Why are demand deposits considered as money?

Ans : 

Demand deposits are a type of deposit that acts as a means of exchange, similar to money.

The individual who needs to be paid receives a check. The cheque orders the bank to deduct the needed sum from the individual issuing the payment's deposit.

In this case, a transaction has occurred without the use of currency, with the same result. As a result, demand deposits are seen as money.

4. Why do lenders ask for collateral while lending?

Ans: Collateral is a borrower's asset, such as land or a building, that is used as a guarantee to the lender until the loan is returned.

Lenders require collateral for several reasons:

1. It serves as a guarantee for the loan.

2. If the borrower fails to repay the loan, the lender has the right to seize the collateral as compensation.

Collateral assures the lender that the loan will be repaid because the borrower will lose the collateral if the loan is not fully repaid.

5. What are the differences between formal and informal sources of credit?

Ans: The distinctions between formal and informal sources credit are summarised in the table below.

6. Why should credits at reasonable rates be available for all?

To achieve equality of opportunity, everyone should have access to credit at a reasonable rate.

Everyone who wants to help the economy by providing services should be given the opportunity to obtain the financial resources they need to establish their firms or purchase assets.

To keep the country's inflation rate under control, everyone needs access to regulated credit. Money's time value must be managed.

This must also be offered to reduce instances of unsecured credit with excessive interest rates that harm borrowers’ livelihoods. If the borrower's entire earnings are used to repay high-interest informal credit, the borrower will be forced to close their business, which is not a good situation.

7. In a situation with high risks, credit might create further problems for the borrower. Explain.

1. A high-risk situation indicates that the borrower will have difficulty repaying the loan.

2. The loan is repaid with the profits generated by the borrower's business.

3. The loan is repaid with the profits generated by the borrower's business. The revenue generated in high-risk professions like agriculture is based on crop performance. In the event that crops fail due to insufficient rainfall, the agriculturist will be unable to profit from their crop yield. They will be unable to repay the loan on time, and the interest will continue to accrue. They will have to double the crop yield in the next phase to be able to repay a significant portion of the loan without losing money.

These kinds of circumstances put the borrower in a difficult situation.

8. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Ans: The Reserve Bank of India is a central bank that regulates bank lending and other financial activities. The Reserve Bank of India keeps a close eye on banks in the following ways:

1. The Reserve Bank of India (RBI) oversees formal bank loans and sets interest rates for these loans based on the economy's overall performance and people's purchasing power.

2. The RBI ensures that banks lend to profit-making businesses as well as smaller-scale borrowers for a variety of economic activities.

3. The Reserve Bank of India ensures that banks keep a cash reserve available for depositors who wish to withdraw funds.

9. Fill in the blanks: 

(i) Majority of the credit needs of the _________________households are met from informal sources. 

(ii) ___________________issues currency notes on behalf of the Central Government. 

(iii) Banks offer a higher interest rate on loans than what they offer on __________. 

(iv) _______________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender. 

(ii) The Reserve Bank of India

(iii) Interest for money deposits

(iv) Collateral

10. Choose the correct answer:

In a SHG, most of the decisions regarding savings and loan activities are taken by

i. Bank 

ii. Members

iii. Non-Government Organization

Ans: Members

Formal sources of credit do not include 

i. Banks 

ii. Cooperatives 

iii. Employers

Ans: Employers 

If you go through the Class 10 Economics Chapter 3 Notes, you will find that money is termed as the medium of exchange for it operates as an intermediate in the exchange procedure.  A person can easily exchange money for any goods or services.

The Modern Form of Money

If you download the Money And Credit Class 10 Notes PDF you will come to know that grains and cattle were used as a mode of exchange by the Indians in the early ages. After that period, various metallic coins such as gold, silver, copper came into existence as the medium of exchange. In the present day, the modern form of money is circulated as currency-paper notes and coins. The present forms of money are directly related to the present banking system.

The currency notes are issued by the Reserve Bank of India on behalf of the Central Government. No other agencies are permitted to issue currency. The most used currency in India is Rupee.

Deposits in Banks

You will find another form of money in the notes of Economics Class 10 Chapter 3 which is called deposits in banks. The extra cash can be deposited in the banks by opening an account in the banks. Those deposits are accepted by the banks by paying an extra amount as interest. The deposits can be withdrawn as per demand and these are termed as demand deposits. The payment of demand deposits is made with a cheque. The piece of paper indicating the bank to pay a certain quantum from the account of the person to the person in whose name the cheque has been issued is called a cheque.

Activities Related to Loan

Loan activity is one of the most significant topics in the Ch 3 Economics Class 10. In the present day scenario, almost 15% of the deposits are held by the banks as cash. This amount is kept in view of paying the individuals who come to withdraw money from the bank on a certain day. A greater part of the deposits is used to extend loans. Loans are required for different economic activities. A greater rate of interest is charged by the banks on loans. The basic source of revenue of the bank accounts to the difference between the amounts charged from borrowers and the actual payment to the depositors.

Class 10 Economics Chapter 3 describes the meaning of the term credit. An agreement in which the lender gives money, commodities or services to the borrower in return for the guarantee of future payment is termed as credit.

If you properly read the Money and Credit Class 10 Notes, you will learn about credit terminology. Each loan arrangement includes an interest rate. The borrower should pay the lender in addition to the repayment of the principle amount at that interest rate. The lenders also need collateral (security).

The borrower's asset (land, building, car, bank savings, livestock) is referred to as collateral (security). The collateral serves as a commitment to the lender until the loan is repaid. If the borrower fails to repay the loan, the lender may sell the asset or collateral to get payment.

Terms of credit in Money and Credit Class 10 notes refer to the interest rate, collateral and documents required, and form of repayment. If you read the Class 10 Economics Chapter 3 Notes, you will see that credit terms vary depending on the characteristics of the lender and borrower.

Do You Know?

Ch 3 Economics Class 10 will tell you that the development of a country depends upon the affordability and availability of credit. The different types of loans are as follows:

Formal Sector Loans: Loans from banks and cooperatives are called formal sector loans. These are monitored by the Reserve Bank of India.

• Informal Sector Loans: Loans from moneylenders, traders, relatives are called informal sector loans. This type of loan is monitored by none.

Download Class 10 Economics Chapter 3 - Money And Credit Notes 

Class 10 Students can download Economics Revision Notes for all chapters through the link below.

CBSE Class 10 Economics Chapter 1 Revisions Notes

CBSE Class 10 Economics Chapter 2 Revisions Notes

CBSE Class 10 Economics Chapter 3 Revisions Notes

CBSE Class 10 Economics Chapter 4 Revisions Notes

CBSE Class 10 Economics Chapter 5 Revisions Notes

Money and Credit Class 10 Notes CBSE Economics Chapter 3, available as a free PDF download, provides a comprehensive and insightful exploration of the fundamental concepts of money and credit and their crucial roles in modern economies.

The notes begin by introducing the concept of money and its characteristics as a medium of exchange, unit of account, store of value, and standard of deferred payment. Students learn about the evolution of money and its importance in facilitating trade and economic transactions.

Moreover, Money and Credit Class 10 Notes delve into the concept of credit and its significance in enabling borrowing and lending activities in the economy. Students gain insights into the various sources of credit, including formal institutions like banks and informal sources like moneylenders.

FAQs on Money and Credit Class 10 Notes CBSE Economics Chapter 3 (Free PDF Download)

1. What is Formal and Informal Credit in Class 10 Economics Chapter 3?

You will comprehend the difference between official and informal credit if you attentively study the notes for Economics Class 10 Chapter 3. Just half of the total credit required by rural people is provided by the formal sector. The remainder of the credit is provided by the informal sector. The most important aspect is that formal credits be distributed in an equitable manner to disadvantaged individuals. Banks' primary responsibility must be to lessen their reliance on the informal sector.

2. What are the Self-Help Groups for?

There is much dependence on informal sources of credit because of the following reasons:

There are not sufficient banks in rural India.

Even if the banks are present, due to lack of proper documents and collateral, obtaining a loan from the bank is very complicated.  

Due to these specific problems, self-help groups (SHG) are created by the people of rural India. Small groups of poor people which encourage small savings among the members are termed as SHG. Generally, an SHG consists of 15-20 members.

3. What is credit?

Credit means loans. It refers to an agreement in which the money, goods or services are supplied to the borrower by the lender in return for future repayment. Cheap and affordable credit is very important for the growth of the country and economic development. Credit can fuel various kinds of economic activities, such as investing in a business or for buying luxury things like cars etc. It helps people living in rural areas develop cultivation by providing them funds to buy seeds, pesticides etc.

4. Why is money needed?

Money plays an important role in our everyday life as it is used as a medium of exchange in transactions. It is needed for us to buy food, clothes, shelter and other basic necessities of life. It provides us with social security. It is also necessary for us to access services like transport, education, healthcare, entertainment and so on. Money is the basis of the working of an economy and facilitates business and trade.

5. What is money?

Money literally means anything which has common acceptability by the people as a means of exchange. It refers to the medium of exchange in the form of coins or banknotes. It allows a person to easily buy or sell products. It allows us to buy anything we need for our livelihood and is used for lending loans. For a more detailed explanation, you can visit Vedantu for Notes of Chapter 3  Class 10 Economics and download it free of cost. 

6. Who are the informal money lenders?

Loans are made by informal money lenders to individuals. They might be a friend, family, moneylender, dealer, or employer. You are not required to provide collateral to informal moneylenders. There is no organisation to monitor their actions, and they demand excessive interest rates on loans. Students may learn more about it by downloading the vedantu app.

7. What are the advantages of SHGs?

SHGs or Self-Help Groups help people obtain timely loans for various purposes at a reasonable interest rate. They also help the woman become financially self-reliant and even assist people who have borrowed money to overcome the problem of lack of collateral. Self Help Groups are the building blocks of the organisation for the poor, living in rural areas. The group conducts regular meetings providing a platform to discuss and bring changes in various issues such as domestic violence, health, finances, etc.

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• Chapter 3 Money And Credit

CBSE Notes Class 10 Economics Chapter 3 - Money and Credit

In CBSE Notes Class 10 Economics Chapter 3 – Money and Credit, you will learn modern forms of money and how they are linked with the banking system. In the second half of the chapter, you will know about credit and how it impacts borrowers, depending upon the situation. So, go through these notes to understand these topics in-depth. Also, you can download these CBSE Notes Class 10 Social Science  in pdf format for future reference during your exams.

• Chapter 1 Development
• Chapter 2 Sectors of the Indian Economy
• Chapter 4 Globalisation and the Indian Economy
• Chapter 5 Consumer Rights

CBSE Notes Class 10 Economics Chapter 3 – Money and Credit

Money as a medium of exchange.

Money acts as an intermediate in the exchange process, it is called a medium of exchange. A person holding money can easily exchange it for any commodity or service that he or she might want.

Modern Forms of Money

In the early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins – gold, silver, copper coins – a phase which continued well into the last century. Now, the modern forms of money include currency – paper notes and coins. The modern forms of money – currency and deposits – are closely linked to the workings of the modern banking system.

In India, the Reserve Bank of India issues currency notes on behalf of the central government. No other individual or organisation is allowed to issue currency. The rupee is widely accepted as a medium of exchange in India.

Deposits in Banks

The other form in which people hold money is as deposits with banks. People deposit their extra cash with the banks by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits.

The deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits . The payments are made by cheque instead of cash.

A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued.

Loan Activities of Banks

Banks keep only a small proportion of their deposits as cash with themselves. These days banks in India hold about 15% of their deposits as cash. This is kept as a provision to pay the depositors who might come to withdraw money from the bank on any given day. Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged by borrowers and what is paid to depositors is their main source of income for banks.

Two Different Credit Situations

Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Here are two examples which help you to understand how credit works.

Festive Season:

In this case, Salim obtains credit to meet the working capital needs of production. The credit helps him to meet the ongoing expenses of production, complete production on time, and thereby increase his earnings. In this situation, credit helps to increase earnings, and therefore, the person is better off than before.

Swapna’s Problem:

In Swapna’s case, the failure of the crop made loan repayment impossible. She had to sell part of the land to repay the loan. Credit, instead of helping Swapna improve her earnings, left her worse off. This is an example of debt-trap . Credit, in this case, pushes the borrower into a situation from which recovery is very painful. Whether credit would be useful or not depends on the risks in the situation and whether there is some support in case of loss.

Terms of Credit

Every loan agreement specifies an interest rate that the borrower must pay to the lender along with the repayment of the principal. In addition, lenders also demand collateral (security) against loans.

Collateral (Security) is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.

Interest rate, collateral and documentation requirement and the mode of repayment, together, are called the terms of credit . It may vary depending on the nature of the lender and the borrower.

Formal Sector Credit in India

Cheap and affordable credit is crucial for the country’s development. The various types of loans can be grouped as follows:

Formal sector loans:

These are the loans from banks and cooperatives. The Reserve Bank of India supervises the functioning of formal sources of loans. Banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.

Informal sector loans:

These are the loans from moneylenders, traders, employers, relatives and friends, etc. There is no organisation which supervises the credit activities of lenders in the informal sector. There is no one to stop them from using unfair means to get their money back.

Formal and Informal Credit

The formal sector meets only about half of the total credit needs of rural people. The remaining credit needs are met from informal sources. It is important that formal credit is distributed more equally so that the poor can benefit from cheaper loans.

• It is necessary that banks and cooperatives increase their lending, particularly in rural areas, so that the dependence on informal sources of credit reduces.
• While the formal sector loans need to expand, it is also necessary that everyone receives these loans.

Self Help Groups for the Poor

Poor households are still dependent on informal sources of credit because of the following reasons:

• Banks are not present everywhere in rural India.
• Even if banks are present, getting a loan from a bank is much more difficult as it requires proper documents and collateral.

To overcome these problems, people created Self Help Groups (SHGs). SHGs are small groups of poor people who promote small savings among their members. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly.

Advantages of Self Help Groups (SHG)

• It helps borrowers to overcome the problem of lack of collateral.
• People can get timely loans for a variety of purposes and at a reasonable interest rate.
• SHGs are the building blocks of the organisation of the rural poor.
• It helps women to become financially self-reliant.
• The regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc.

We hope “ CBSE Notes Class 10 Economics Chapter 3 – Money and Credit” helped you in your studies. Keep learning and stay tuned for more updates on CBSE and NCERT. Download BYJU’S App and subscribe to the YouTube channel to access interactive maths and science videos.

For information on Barter System , watch the below video

Frequently Asked Questions on CBSE Class 10 Economics Chapter 3 Money and Credit

How many currencies are there in the world.

A total of 180 currencies are recognised by the United Nations.

What is the use of Self Help Groups?

1. Women can be financially independent 2. Can borrow loans without collateral 3. Loans are provided are a low-interest rate 4. Helps the rural and needy people

What is ‘collateral’?

Any property or valuable item which is accepted by the lender and is accepted as security for a loan.

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Case Study Questions for Class 10 Social Science Economics Chapter 3 Money and Credit

• Last modified on: 11 months ago
• Reading Time: 8 Minutes

Case Study Questions for Class 10 Social Science Political Science Chapter 3 Money and Credit

Here we are providing case study questions for Class 10 Social Science Political Science Chapter 3 Money and Credit.

Case Study Question 1:

Read the source given below and answer the questions that follow:

Getting a loan from bank is much more difficult than taking loan from informal sources. Absence of collateral security and documentation prevents the poor from getting bank loans.

Self-help group is a group of people usually belonging to one neighbourhood having same social and economic backgrounds. They meet and save money regularly as per their ability. Members of the group can take small loans from the group itself to meet their needs. The group charges interest less than moneylenders on these loans.

After one or two years, if the group is regular in savings, it becomes eligible for availing loan form the bank. Loan is sanctioned in the name of group and is meant to create self-employment opportunities.

Q 1. What is the most essential requirement for taking loan from informal services? Ans. The most essential requirement for taking loan from informal services is collateral security.

Q 2. What facilities do the members have who are in the same group? Ans. Members who are in the same group can take small loans from the group itself to meet their needs.

Q 3. What benefits are there for a self-help group that is regular in savings? Ans. Self-help group that is regular in savings are entitled to raise loan from bank in the name of SHG.

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Tips to prepare for case study questions for class 10 social science.

Preparing for case study and passage-based questions in class 10 social science can be challenging, but it is important to remember that with the right approach, you can effectively tackle these types of questions. Here are some steps you can take to prepare for case study questions for class 10 social science:

• Understand the format of case study questions: Case study questions for class 10 social science usually require you to read a scenario or a passage and answer a set of questions based on it. These questions can be based on various topics like history, geography, economics, or civics.
• Read and analyze the case study or passage carefully: The first step in answering case study questions is to read the scenario or passage carefully. Try to identify the main idea or theme of the passage and note down any important details that you think are relevant. Pay attention to any maps, graphs, or charts that are included as they can be helpful in answering the questions.
• Identify the type of questions being asked: After reading the case study or passage, you should analyze the questions being asked. Try to identify the type of question, whether it is a factual question or an analytical question. Factual questions require you to provide specific details from the passage, while analytical questions require you to use your critical thinking skills to analyze the information presented in the passage.
• Use your textbook and notes: To prepare for case study questions for class 10 social science, it is important to have a thorough understanding of the topics covered in your textbook. Go through your notes and textbook to revise the relevant topics and concepts. This will help you to answer the questions more accurately.
• Practice sample questions: One of the best ways to prepare for case study questions is to practice answering sample questions. Try to find sample questions online or in your textbook and practice answering them. This will help you to get comfortable with the format of the questions and improve your speed and accuracy.

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