Money and Credit · Class 10 Economics: 100 flashcards
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1. Why does everyone prefer to receive payment in money?
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Because money can easily be exchanged for any good or service one wants.
2. What is a barter system?
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A system in which goods are directly exchanged for goods without the use of money.
3. What is double coincidence of wants?
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A situation where what one person wants to sell is just what the other wants to buy.
4. Why is double coincidence of wants essential in barter?
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Because without money, an exchange can take place only if each party wants exactly what the other offers.
5. How does money solve the problem of double coincidence of wants?
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It provides an intermediate step: a seller exchanges goods for money and then uses money to buy what he wants from anyone.
6. Why is money called a medium of exchange?
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Because it acts as an intermediate in the exchange process.
7. What was used as money in India in very early ages?
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Grains and cattle.
8. Which metals were used for coins before modern currency?
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Gold, silver and copper.
9. What does modern currency consist of?
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Paper notes and coins.
10. How is modern currency different from earlier forms of money?
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It is not made of precious metal and is not of everyday use like grain or cattle; it has no use of its own.
11. Why is modern currency accepted as a medium of exchange?
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Because it is authorised by the government of the country.
12. Who issues currency notes in India?
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The Reserve Bank of India, on behalf of the central government.
13. Can anyone other than the RBI issue currency in India?
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No — the law permits nobody else, person or institution, to issue currency.
14. Can a person in India legally refuse payment in rupees?
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No. The law makes the rupee a medium of payment that cannot be refused in settling transactions.
15. What is written on top of an Indian currency note, and what does it mean?
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'Reserve Bank of India' and 'Guaranteed by the Central Government'; with the RBI Governor's promise to pay the bearer, it shows the note's value rests on the government's authority.
16. Give an example of a transaction where no money changes hands now.
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Buying goods on credit with a promise to pay money later.
17. Name two old coins shown in the chapter.
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Any two: punch-marked coins, Gupta coins, a gold mohur of Akbar's reign, a Tughlaq coin.
18. Until when did the phase of metallic coins continue?
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Well into the last century.
19. In the shoe maker example, what does he need to find if money is used?
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Only a buyer for his shoes; he can then buy wheat from anyone with the money.
20. Give an example of wages being paid through barter.
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A farm labourer being paid in grain for harvest work.
21. Why do people deposit extra cash in banks?
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Their money is safe, it earns interest, and they can withdraw it when they need it.
22. What are demand deposits?
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Bank deposits that can be withdrawn whenever the depositor demands.
23. What is a cheque?
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A written order telling the bank to pay a stated sum from the account holder's account to the person named on it.
24. Why are demand deposits considered money?
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They can be withdrawn on demand, and through cheques they settle payments directly without cash, so they are widely accepted as a means of payment.
25. After Salim pays Prem by cheque, what happens to their bank balances?
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Salim's balance decreases and Prem's balance increases.
26. How long does the cheque transfer take in the chapter's example?
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A couple of days.
27. How would Salim write a cheque to withdraw Rs 20,000 in cash for himself?
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By writing a cheque for Rs 20,000 in his own name (or 'self') and presenting it at his bank.
28. What does money in the modern economy consist of?
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Currency held by the public and demand deposits held with banks.
29. What proportion of deposits do banks in India hold as cash?
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About 5%.
30. Why is about 5% cash enough for a bank on a normal day?
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Because only some of its many depositors come to withdraw cash on any particular day.
31. What do banks do with the major portion of their deposits?
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They use it to give loans.
32. How do banks mediate between two groups of people?
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They take deposits from those with surplus funds and lend them to those who need funds.
33. What is the main source of income for banks?
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The difference between the interest charged on loans and the interest paid on deposits.
34. Do banks charge more interest on loans or pay more on deposits?
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They charge a higher rate on loans than they pay on deposits.
35. What would happen if all depositors went to withdraw their money at the same time?
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The bank could not pay everyone at once, since it keeps only about 5% of deposits as cash and has lent the rest.
36. Why are modern forms of money linked to the banking system?
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Because without banks there would be no demand deposits and no payments by cheque against them.
37. Name three details printed on a cheque.
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The account number, the cheque number and the bank branch code.
38. What do depositors receive from banks?
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Interest on their deposits, and the right to withdraw money when needed.
39. What do borrowers give back to banks?
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The loan amount with interest.
40. Name two digital ways of paying from a bank deposit.
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Any two: internet or mobile bank transfer, debit card, POS swipe machine, UPI QR code.
41. Define credit.
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An arrangement where one side hands over money, goods or services now, against a promise to be paid later.
42. Why did Salim need credit?
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To meet working capital needs — hiring workers and buying raw materials — to complete a 3,000-pair shoe order on time.
43. Name Salim's two sources of credit.
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The leather supplier, who supplied leather to be paid for later, and the large trader, who gave a cash advance for 1,000 pairs.
44. What was the outcome of credit for Salim?
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He delivered the order on time, made a good profit and repaid the loans — credit raised his earnings.
45. Why did Swapna take a loan?
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To meet the expenses of growing groundnut on her three acres.
46. What was the risk in Swapna's situation?
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Crop failure — her crop was destroyed by pests, making repayment impossible.
47. What was the outcome for Swapna?
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Her debt grew, and she had to sell part of her land to repay it — a debt trap.
48. What is a debt trap?
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A situation in which credit pushes the borrower into a position from which recovery is very painful.
49. What decides whether credit helps or harms?
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The risks in the situation and whether there is support in case of loss.
50. What is the main demand for credit in rural areas?
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Crop production.
51. Why do farmers need crop loans?
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Because there is a gap of three to four months between buying inputs and selling the crop.
52. What is collateral?
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An asset the borrower owns, used as a guarantee to the lender until the loan is repaid.
53. Give four examples of collateral.
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Land titles, buildings, vehicles, livestock, deposits with banks (any four).
54. Why do lenders ask for collateral?
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As a guarantee: if the borrower fails to repay, the lender has the right to sell the collateral to recover the loan.
55. What are the terms of credit?
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Interest rate, collateral and documentation requirements, and the mode of repayment.
56. Do terms of credit stay the same across loans?
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No, they vary substantially depending on the nature of the lender and the borrower.
57. What are 'easy terms of credit' for a borrower?
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A low interest rate, easy repayment conditions, and less collateral and documentation.
58. State the amount, interest rate and duration of Megha's house loan.
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Rs 5 lakh at 12% a year, repaid over 10 years in monthly instalments.
59. What did Megha have to submit, and what did the bank keep as collateral?
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She submitted her employment records and salary documents; the bank kept the papers of her new house.
60. How does poverty affect a person's capacity to borrow?
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Poor people often lack collateral and documents, so banks may not lend to them, and they must rely on costlier lenders.
61. What interest rate did Shyamal pay the moneylender?
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5% a month, or 60% a year.
62. What extra condition does the trader impose on Shyamal?
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Shyamal must promise to sell his crop to the trader after harvest.
63. How does the trader profit beyond the interest?
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He buys the crop cheaply after harvest when prices are low and sells it later when prices rise.
64. State the terms of Arun's bank loan.
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8.5% a year, repayable any time in the next three years.
65. What facility does Arun's bank offer after harvest?
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A fresh loan against the cold storage receipt for his stored potatoes.
66. Why does Rama borrow, and from whom?
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For daily expenses in months without work and for illnesses or functions; from her landowner-employer.
67. How does Rama repay her loans?
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By working for the landowner.
68. What will happen to Rama's debt over the years?
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It will rise, since she keeps taking fresh loans before repaying old ones at 5% a month.
69. Why is Arun one of the few in Sonpur with a bank loan?
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Because banks demand collateral, which not everyone can provide.
70. How does Krishak Cooperative raise funds to lend?
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It uses members' deposits as collateral to get a large loan from a bank, and lends these funds to members.
71. Name the formal sources of credit.
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Banks and cooperatives.
72. Name the informal sources of credit.
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Moneylenders, traders, employers, relatives and friends.
73. Who supervises formal sources of credit?
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The Reserve Bank of India.
74. Name two ways the RBI supervises banks.
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It checks that banks maintain their minimum cash balance, and ensures they lend to small cultivators, small industries and small borrowers, not just big businesses.
75. Why would supervising informal lenders be difficult?
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They are many, scattered, keep no records and deal personally with borrowers, so tracking their lending is hard.
76. What does a higher cost of borrowing do to a borrower?
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A larger part of earnings goes to repayment, leaving less income; it can make debt grow into a debt trap.
77. What share of rural credit came from formal sources in Graph 1 (2019)?
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About 66% — commercial banks 51, cooperatives 10, other formal 5.
78. What share of rural credit came from moneylenders in Graph 1?
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23%.
79. What share of poor and rich urban households' loans is informal, per Graph 2?
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Poor 54%, rich 17%.
80. Why should credit at reasonable rates be available for all?
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So people can grow crops, do business and set up small industries without falling into debt traps; cheap credit is crucial for development.
81. Give two reasons why the poor depend on informal credit.
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Banks are not present everywhere in rural India, and bank loans require documents and collateral, which the poor often lack.
82. Why are moneylenders willing to lend without collateral?
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They know the borrowers personally.
83. What are the drawbacks of borrowing from moneylenders?
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Very high interest, no records of transactions, and harassment of poor borrowers.
84. What is a self-help group?
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A group of 15-20 people, usually poor rural women from one neighbourhood, who meet and save regularly and lend to members from pooled savings.
85. How much does each SHG member typically save?
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Rs 25 to Rs 100 or more, depending on ability.
86. How does the interest on SHG internal loans compare with the moneylender's?
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It is lower than what the moneylender charges.
87. When does an SHG become eligible for a bank loan?
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Once a year or two has passed, provided the group has saved without a break.
88. In whose name is a bank loan to an SHG sanctioned?
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In the name of the group.
89. Name four uses of SHG loans.
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Releasing mortgaged land, working capital (seeds, fertilisers, bamboo, cloth), housing materials, and assets such as sewing machines, handlooms and cattle.
90. Who takes most decisions about savings and loans in an SHG?
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The group members.
91. Who is responsible for repaying an SHG's bank loan?
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The group as a whole.
92. Why are banks willing to lend to SHGs without collateral?
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Because the group is responsible for repayment, and members seriously follow up any member who does not repay.
93. How do SHGs help borrowers overcome the lack of collateral?
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Group responsibility replaces collateral, so members get timely loans at a reasonable interest rate.
94. State two social benefits of SHGs.
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They help women become financially self-reliant, and their meetings provide a platform to discuss health, nutrition and domestic violence.
95. What are SHGs called in terms of organising the rural poor?
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Building blocks of organisation of the rural poor.
96. When did Grameen Bank start?
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In the 1970s, as a small project.
97. How large was Grameen Bank in 2018?
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Over 9 million members in about 81,600 villages across Bangladesh.
98. Who are Grameen Bank's borrowers?
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Almost all are women from the poorest sections of society.
99. Who founded Grameen Bank, and what award did he receive?
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Professor Muhammad Yunus, who received the 2006 Nobel Prize for Peace.
100. What two steps does the chapter recommend in its summing up?
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Increase total formal sector credit, and give the poor a much greater share of formal loans.
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