AP Board 10th Class Social Economics Notes 3rd Lesson Money and Credit
→ Money serves as a medium of exchange, making transactions easier compared to barter. Coins, currency notes and bank deposits are some modern forms of money.
→ Banks accept deposits from people and lend the money to those who need it. The interest rate paid on deposits is lower than the interest rate charged on loans. This difference is the main source pf income for banks.
→ Formal sector loans are provided by banks and cooperatives. Informal sector loans are provided by moneylenders, traders, employers etc. Informal loans are more expensive but more easily available.
→ The poor mainly depend On informal loans which have very high interest rates. Expanding formal credit and’self-help groups are ways to provide cheaper loans to the poor.
→ The RBI supervises the functioning of banks to ensure stability of the banking system and availability of credit to all sectors.
→ Self-help groups empower the poor by allowing them to avail loans at reasonable interest rates.
→ Money acts as a medium of exchange facilitating transactions.
→ Evolves from commodities to metallic coins to paper currency and bank deposits.
→ Solves problems of barter system like double coincidence of wants.
→ Provides a standard unit for measurement of value.
→ Enables storage of purchasing power over time.
→ Allows credit transactions and deferred payments.
→ Modern forms include currency, coins, bank deposits, cheque, credit cards.
→ Currency issued by central bank, others linked to banking system.
→ Banks accept deposits and lend major part of it as loans.
→ Difference in interest on loans and deposits is bank’s income.
→ Act as intermediaries between depositors and borrowers.
→ Demand deposits offer cheque facility for payments.
→ Formal loans from banks, cooperatives regulated by RBI.
→ Informal loans from moneylenders, traders unregulated.
→ Informal loans meet half of rural credit needs.
→ Informal loans have high interest rates leading to debt traps.
→ Richer households get access to cheaper formal credit.
→ Poor depend more on expensive informal loans.
→ Need .to expand formal credit via regional rural banks.
→ Self-help groups facilitate women’s access to bank loans.
→ RBI regulates the banking system as central bank.
→ Prescribed interest rates, reserve requirements, credit controls.
→ Ensures financial stability and supports economic growth.
→ Supervises banks, clearing, monetary policy implementation, n* Banks provide information to RBI on lending, priority sectors.
→ Demonetisation – Declaring some currency notes invalid.
→ Aims at curbing black money and promoting digital payments.
→ Caused cash crunch, slowdown and inconvenience initially.
→ Credit helps economic activities by meeting expenses, investment.
→ Collateral is asset pledged to secure a loan.
→ Debt trap is worsening debt due to accumulated interest.
→ Terms of credit include interest, collateral, repayment schedule.
→ Financial inclusion needs easy access to bank accounts, credit.
→ Alternatives like microfinance, financial literacy programs.
→ Dependency on informal credit needs to be reduced.
→ Formal sector credit to expand for development.
→ Loan agreement : A formal contract that outlines the terms and conditions of a loan, including repayment schedule, interest rates, and penalties for non-payment.
→ Money : A medium of exchange used to facilitate transactions and represent value.
→ Credit : The ability to borrow money or obtain goods/services with the promise of future repayment.
→ Banking system : A network of financial institutions that provide various financial services, including storing money, lending, and facilitating transactions.
→ History of money : The evolution and development of different forms of money throughout time.
→ Forms of money : Different types of money used in various societies, such as coins, paper currency, digital currency, etc.
→ Availability of credit : The accessibility and fairness of credit to all individuals, especially those who are poor or financially disadvantaged.
→ Terms of credit. : The conditions and requirements associated with borrowing money, including interest rates, collateral, repayment duration, etc.
→ Importance of credit : The significance of credit in economic life, enabling individuals and businesses to invest, purchase goods, and promote economic development.
→ Debt trap : A situation where borrowers are unable to repay their loans, leading to a cycle of increasing debt.
→ Collateral : An asset or property provided by a borrower as security to a lender in case of loan default.
→ Documentation requirements : The necessary paperwork or documents needed when applying for and obtaining credit.
→ Formal lenders : Financial institutions, such as banks, that provide loans and other financial services through established procedures and regulations.
→ Informal leaders : Individuals or entities that provide loans outside of traditional banking systems, often with fewer regulations and formal requirements.
→ Cooperatives : Group-owned enterprises that pool resources to provide financial services and support to their members.
→ Development process : The progress and improvement of an economy and society through various economic and social activities.
→ Risksof credit : Potential negative consequences and uncertainties associated with borrowing and lending money.
→ Poor: Individuals or households with low incomes and limited access to resources and financial services.
→ Double coincidence of wants : The situation where two parties have to have exactly what the other wants to engage in direct exchange, which is solved by the use of money.
→ Asset : Something of value owned by an individual or entity, which can be used as collateral or sold to generate funds.