Money and credit Class 10 Economics Chapter 3 Exercise

Class 10 Economics Chapter 3 is “Money and Credit”. Get here the latest updated NCERT Solutions of Money and Credit Class 10 Economics Chapter 3 as per latest CBSE syllabus.

Class 10 Economics Chapter 3 : Money and Credit

“Money and Credit” is the third chapter in the economics book of Social Science Subject for Class 10. This chapter includes the End Exercise and Intext questions related to – MODERN FORMS OF MONEY, TWO DIFFERENT CREDIT SITUATIONS, TERMS OF CREDIT, Collateral, Formal and Informal Credit, etc.

Money and Credit Class 10 Economics Chapter 3 [ NCERT Solutions ]

Chapter Chapter 3 : Money and Credit
SubjectEconomics – Social Science
Class 10
Study MaterialNCERT Solution ( Intext and End Exercise )
Number of QuestionsTotal 13 Questions
Text Book NameUnderstanding Economics Development
( NCERT Text Book in Economics for Class 10 )

End Exercise Questions Ncert Solutions

Class 10 Economics Chapter 3 Question 1 :
In situations with high risks, credit might create further problems for the borrower. Explain.

Answer :
Yes, in situations with high risks credit might create further problems for the borrower.
For example small farmer takes loan from money lender that he will repay the loan after harvest. But by chance his/her crops fail due to floods or drought. Then it will quite impossible for him to repay the loan.

In the next season again he/she has to take a loan even if a normal harvest is there, the farmer will not be able to get free from the loan. In the last to come out of this situation, the farmers has to sell a part of his/her land. Son in such cases the credit proves nothing less than a debt and creates further problems for the borrowers

Class 10 Economics Chapter 3 Question 2 :
How does money solve the problem of double coincidence of wants? Explain with an example of your own
.
Answer :
“Double Coincidence of wants ” means both parties i.e. the buyer and the seller have to agree to sell and buy each others commodities. Take the case of a vegetable grower who want to sell his/her potatoes in exchange of clothes.

So, the farmer has to find a person who is need of potatoes and ready to sell cloth. To find such a person is very difficult. But if money is there in the market the vegetable grower first very easily exchange his/her potatoes with money and from that he/she can but cloth. Hence, we see that money solved the problem of double coincidence of wants.

Class 10 Economics Chapter 3 Question 3 :
How do banks mediate between those who have surplus money and those who need money?

Answer :
People who have surplus money. They deposit it with bank and bank gives them an interest on the deposits. As per directions of RBI bank helps a small portion from these deposits as cash remaining part is used to extend loans to the needy people.

In this way, Banks mediate between those who have surplus fund (the depositor) and who are in need of these funds ( the borrower ) . Bank charges a high rate of interest on the loans than what they offer on the deposits. The difference between what is charges from the borrowers and what is paid to depositors is their main source of income.

Class 10 Economics Chapter 3 Question 4 :
Look at a 10 rupee note. What is written on top? Can you explain this statement?

Answer :
Following is written on a 10 rupee note
Reserve Bank of India
Guaranteed by the central government .
I promise to pay the bearer the sum of 10 rupees
signed by the governor of the reserve bank

It means the note has been issued by the reserve bank of India and guaranteed by the central government. On behalf of the central government, the governor of RBI promises to pay a sum of rupee 10 the bearer of the note. Without guarantee of central government it is nearly a piece of paper.

Class 10 Economics Chapter 3 Question 5 :
Why do we need to expand formal sources of credit in India?

Answer :
We need to expand the formal source of credit because of the following reasons :
1. The formal sources of credit are supervised by the RBI. But the informal sources of credit are not supervised by any such authority. They charge high rate of interest and exploit the borrower .

2. There is no one in informal sector to stop them from using unfair means to get their money back.
3. Formal sector extend the loans at lower rate of interest but the informal sector charges high rate of interest. So the amount to be paid as interest is higher than income of borrower.

4. This causes a debt trap situation for the borrower.
5. Because of the higher cost of borrowing from the informal sector, anyone who wish to start a business by borrowing don’t start it.
6. For these reasons, there is a need to expand the formal sources of credit. So that more and more people can take easy loan and start business which will lead to the economic development of the country.

Class 10 Economics Chapter 3 Question 6 :
What is the basic idea behind the SHGs for the poor? Explain in your own words

Answer :
1. The basic idea is to organise rural poor, in particular women, into small Self Help Groups (SHGs) and pool (collect) their savings.
2. A typical SHG has 15-20 members, usually belonging to one neighbourhood, who meet and save regularly.
3. Saving per member varies from Rs 25 to Rs 100 or more, depending on the ability of the people to save.
4. 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.

5. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank.
6. Loan is sanctioned in the name of the group and is meant to create self-employment opportunities for the members.
7. Most of the important decisions regarding the savings and loan activities are taken by the group members.
8. The group decides as regards the loans to be granted — the purpose, amount, interest to be charged, repayment schedule etc.

9. Also, it is the group which is responsible for the repayment of the loan.
10. Any case of non-repayment of loan by any one member is followed up seriously by other members in the group. Because of this feature, banks are willing to lend to the poor women when organised in SHGs, even though they have no collateral as such.

Class 10 Economics Chapter 3 Question 7 :
What are the reasons why the banks might not be willing to lend to certain borrowers?

Answer :
1. Bank loans require proper documentation and collateral. Most of the poor people don’t have anything for collateral.
2. The formal sources provide loan only for productive purpose whereas the poor people may demand loan for non productive purposes
3. If previous loan is not paid they will not be given new loan.

Class 10 Economics Chapter 3 Question 8 :
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Answer :
The RBI supervises the Indian bank in the following manner :-
1. Commercial banks are required to maintain a minimum cash balance out of the deposits they receive.
2. The RBI monitors that the bank actually maintains the cash balance.
3. The RBI checks that the banks give loan not just to profit making business and traders but also to small cultivators, small scale industry , small borrowers, etc.
4. Periodically, Banks have to submit information to the RBI on how much they are lending, to whom, at which interest rate, etc

This is necessary because if there is no supervision by the RBI the banks can behave like informal sector of credit. They can charge high rate of interest and even can harass the poor by forcing them to accept difficult condition.

Class 10 Economics Chapter 3 Question 9 :
Analyse the role of credit for development.

Answer :
1. It helps in increasing economic activities for the country. This it helps in development.
2. If the credit is made available to poor people at reasonable rate, they can improve their economic condition. It will further improver their standards of living and overall development .
3. Credit helps in the development of primary and secondary sector

Class 10 Economics Chapter 3 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 :
1. Rate of Interest.
2. Amount required
3. Time Period
4. Procedure to get the loan
5. Terms and conditions of the loan.

Class 10 Economics Chapter 3 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?
Answer :
The banks are unwilling to lend small farmers because of the following reasons :
1. Small farmers are can’t give any proof of their income.
2. They are not to offer anything as guarantee to banks against their loans.
3. Nobody comes forward to stand as surety for small farmers.

(b) What are the other sources from which the small farmers can borrow?
Answer :
The small farmers often borrow from a money lender or a trader who supplies him seeds and his other requirements.

(c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
Answer :
If the farmer borrow from either a money lender or a local trader, he will always be at a lose because he will have to pay a high rate of interest between 36% to 60% per annum.

(d) Suggest some ways by which small farmers can get cheap credit
Answer :
Small farmers get cheap credit from their own co-operative and SHGs which lend loans to its members at the cheap rates and easy terms.

Class 10 Economics Chapter 3 Question 12 : Fill in the blanks:
(i) Majority of the credit needs of the ___________households are met from informal sources.
Answer : Rural poor and urban poor
Majority of the credit needs of the Rural poor and urban poor households are met from informal sources.

(ii) ___________________costs of borrowing increase the debt-burden.
Answer : Higher
Higher costs of borrowing increase the debt-burden.

(iii) ____________ issues currency notes on behalf of the Central Government.
Answer : Reserve Bank of Indi ( RBI)
Reserve Bank of Indi ( RBI) issues currency notes on behalf of the Central Government.

(iv) Banks charge a higher interest rate on loans than what they offer on _.
Answer : deposits
Banks charge a higher interest rate on loans than what they offer on deposits.

(v) ______ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Answer : Collateral
Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Class 10 Economics Chapter 3 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.
Answer : Option [b] ” Members” is correct.

(ii) Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.
Answer : Option [ c ] ” Employers” is correct.