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| Money and Credit |
- Class: 10th
- Subject: Social Science (Economic)
- Subject: Money and credit
- Resources: Notes, Important Questions
Class 10 Social Science (Economic) Money and credit - Get notes here, questions for class 10. Those candidates who are ambitious to pass class 10 with good marks, can check this article for notes, by practicing this resource, the candidates definitely get to know that their weak area and good for the exam How to prepare.
Double coincidence of wants.
The double coincidence of wants' mean both parties, i.e. the buyer and seller have to agree to sell and buy each other's commodities.
Barter system
The system of exchanging goods is known as the barter system.
Limitations
- In a barter system, double coincidence of wants is required.
- The person is required to sell only what the other wishes to buy.
- If both parties do not agree, goods cannot be exchanged for goods.
- Valuation of the goods is very difficult.
- Barter system is time consuming.
Modern form 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.
Currency
A currency is a unit of exchange, facilitating the transfer of goods and / or services.
Three features of modern Indian currency:
- It is authorised by the government of the country.
- Its demand and supply can be controlled by the Central Bank of the country.
characteristics of money
- Money has eliminated the problem of double coincidence of wants.
- Money acts as a medium of exchange.
- It is easily acceptable.
Demand deposits
Demand deposits are the deposits which can be encased by the account holder any time.
Advantage of demand deposits
- They can be used as a medium of exchange.
- They are easily acceptable.
- They help in settling payments without the use of cash.
2 examples that help you understand how credit works.
Festive season:
In this case, Salim receives credit for meeting the working capital needs of production. Credit helps him to meet the ongoing expenses of production, completes production on time, and in this way increases his earnings. In this situation, credit helps in increasing earnings and hence the person is better than before.
Swapna problem:
In Swapna's case, crop failure made debt repayment impossible. She had to sell part of the land to pay off the debt. Instead of helping Swapna improve his earnings, She made it worse. This is an example of a debt trap. Credit, in this case, pushes the borrower into a situation from which recovery is very painful. Whether the credit will be useful depends on the risk in the situation and whether there is some support in case of a loss.
Supervises the functioning of banks(RBI)
- The formal resources work under the supervision of the Reserve Bank of India or the RBI.
- All the commercial banks maintain a minimum cash balance out of the deposits they receive.
- The RBI monitors that the banks actually maintain the cash balance
- The RBI monitors that the banks give loans not just to profit-making business and traders, but also to small cultivators, small-scale industries, to small borrowers, etc.
- The rate of interest of the formal lenders is decided by the RBI. So normally, the interest rates are very low.
Collateral (Security)
Collateral 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.
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Credit |
Formal
- The Reserve Bank of India (RBI) supervises their function of giving loans.
- They charge a low rate of interest.
- They follow rules and regulations formed by the government
- Collateral is required to obtain credit, Commercial banks, cooperative societies, etc. are the main sources of formal credit.
Informal
- No organisation is there to supervise its lending activities.
- They charge a high rate of interest.
- They do not follow any rules and regulations.
- This sector gives loans without collateral.
- Relatives, moneylenders and landlords are the main source of informal credit.
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Formal and Informal |
SHG
(Self Help Groups)
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SHG |
- A typical SHG can have 15 to 20 members usually belonging to the same village. The main motive of the SHGs is to pool the savings of the poor people.
- Saving per member can vary from * 25 to 100 or more depending on the ability of the people, and the strength of the group.
- The SHGS provide loans to their members at a reasonable rate .
- After a year or two, if the group is regular in savings.
- It becomes eligible for bank loans with the main motive to create self employment opportunities for the members.
- The regular meetings of the groups provide a platform to discuss and act on a variety of social issues such as health, dowry, domestic violence.
Deposit money in bank
People's money remains safe with the banks.
They earn Interest on their deposits Name the organisation which issues currency notes In India on behalf of the Central Government.
Question Bank
Q.Mention any two items which can be used as collateral.
Ans. Land and buildings.
Q. Mention any two main sources of credit for rural households.
Ans.(1) Cooperative and Commercial Banks.
(2) Professional and agriculture money lenders
Q. 'Poor households are still dependent on Informal sources of credit'. Give reason.
Ans. (1) Banks are not present everywhere in rural India. getting a loan from banks is much more difficult than taking a loan from informal Sources
Q.Define the term 'collateral',
Ans. Collateral is an asset that the borrower owns such as land, building, deposits with banks and uses this as a guarantee to a lender until the loan is repaid.
Q. What do people from poor households lack in terms of loan applications?
Ans. Collateral and documentation requirement
Q. Why are most of the poor households deprived from the formal sector of loans?
Ans. Due to lack of collateral.
Q. How do the deposits with banks become their source of income?
Ans. Because these deposits are used for earns interest.
Question Bank
1. Explain double coincidence of wants with the help of an example?
2. What is currency? Explain any three features of modern Indian currency?
3. Explain the loan activity of banks?
4. Explain formal and informal credit recourse?
5.Explain SHG group?
6. In situations with high risk, credit might create further problems for the borrower, Analysis the statement?
7. Cheap and affordable credit is crucial for country's development. Explain
8. Explain Supervises the functioning of banks(RBI)?
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