AP 10th Class Social Economics 3rd Lesson Questions and Answers Money and Credit

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Money and Credit Questions and Answers AP 10th Class Social Economics 3rd Lesson

Question 1.
In situation with high naks, credit might create fur ther problems for the borrower. Explain.
Answer:
Credit can ereate further problems for the borrower in situations with high risks due to the following reasons :
1) Falluce to repay the loan If the borrower faces unexpected difficulties or losses, they may struggle to make loan repayments.

2) Increased debt burden: If borrowing is not accompanied by an increase in income or economic opportunities, the borrower may find it difficult to repay the loan, leading to a higher debt burden.

3) Debt trap: In situations where eredit is not used effectively or the borrower is unable to generate sufficient income to repay the loan, they may become trapped in a cycle of debt.

4) Risk of losing collateral: In some cases, lenders may require collateral for the loan. If the borrower fails to repay the loan, they may lose their collateral, further worsening their financial situation.

5) High interest rates: In high-risk situations, lenders may charge higher interest rates to compensate for potential losses. This can make loan repayment more challenging for the borrower.

6) Limited access to credit: Borrowers in high-risk stuations may find it difficult to access credit from formal sources, forcing them to rely on informal lenders who often charge exorbitant interest rates.

7) Lack of support systems: In high-risk situations, borrowers may face limited support systems or safety nets, making it harder for them to overcome financial challenges and repay their loans.

Question 2.
How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Answer:
1) Money solves the problem of double coincidence of wants by serving as a medium of exchange, allowing people to easily trade goods and services without the need for direct barter.

2) In a barter system, two parties would have to have a mutual desire for each other’s goods or services in order to trade.

3) This can be difficult to achieve, leading to inefficiencies and limitations in trade.

4) With money, individuals can receive payments in the form of money and then use that money to exchange for the goods or services they want.

5) Money acts as a common medium that everyone accepts, making transactions much easier.

6) For example, let’s say you have a bicycle and want to buy a new computer. In a barter system, you would have to find someone who has a computer and wants a bicycle.

7) This can be time – consuming and inefficient. However, with money, you can sell your bicycle for money and then use that money to buy a computer from anyone who accepts payment in money.

Question 3.
How do banks mediate between those who have surplus money and those who need money?
Answer:
1) Banks act as intermediaries between those who have surplus money, known as depositors, and those who need money, known as borrowers.

2) Depositors keep their money in banks by depositing it into accounts, effectively loaning it to the bank.

3) Banks then use the deposited money to provide loans to borrowers who need money for various purposes, such as starting a business, buying a house, or funding education.

4) Banks charge a higher interest rate on the loans they provide compared to the interest rate they offer to depositors, which allows them to earn a profit.

5) By mediating between depositors and borrowers, banks facilitate the transfer of funds from those who have excess money to those who need it, helping to stimulate economic activity and finance various projects and investments.

Question 4.
Look at a 10 rupee note. What is wiritten on top? Can you explain this statement?
Answer:
On top of a 10 rupee note, the statement “Reserve Bank of India” is written. This statement indicates that the currency note is issued by the Reserve Bank of India (RBI) on behalf of the Central Government.

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

1. To reduce dependence on informal sources of credit.
2. To ensure that credit is available to everyone, especially the poor.
3. To provide cheaper loans for the poor and increase their access to credit
4. To support economic development by enabling individuals to start businesses, invest in agriculture, and engage in other productive activities.
5. To ensure fair and reasonable terms of credit, such as lower interest rates
6. To promote financial inclusion and reduce income inequalities

Question 6.
What is the basic idea behind the SHGs for the poor? Explain in your own words.
Answer:
The basic idea behind Self Help Groups (SHGs) for the poor is to organize rural poor, particularly women, into small groups where they save regularly and provide loans to members from the group itself.

1. Members of SHGs work together to meet their financial needs and ensure timely repayment of loans.
2. The group acts as a support system for its members, discussing social issues, and empowering women to become financially independent.

Question 7.
What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer:
Reasons why, banks might not be willing to lend to certain borrowers include:

1. Lack of collateral: Banks often require collateral as security for loans, which some borrowers, particularly the poor, may not have.
2. Unreliable credit history: Banks may be reluctant to lend to borrowers with a history of non – repayment or bad credit.
3. High – risk borrowers: Banks may consider certain individuals or industries as high – risk borrowers and therefore, may not be willing to provide loans.
4. Insufficient documentation: Banks require specific documents and paperwork to process loan applications, and borrowers who cannot fulfill these requirements may be dęnied loans.
5. Iimited income or repayment capacity: Banks assess the borrower’s income and repayment capacity, and if it is deemed insufficient, they may refuse to lend.

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 functioning of banks through various methods and regulations, including:

1. Conducting inspections and audits of banks to ensure compliance with rules and regulations.
2. Setting guidelines and standards for banks capital requirements, liquidity management, and risk management.
3. Monitoring and analyzing banks’ financial statements and performance indicators.
4. Enforcing regulatory measures to maintain the stability and integrity of the banking system.
5. Conducting regular meetings and communication channels with banks to address any concerns or issues.
6. This supervision is necessary to:
7. Maintain the stability and soundness of the banking system.
8. Protect the interests of depositors and ensure the safety of their funds.
9. Minimize the risk of fraud, money laundering, and other financial crimes.
10. Ensure banks adhere to ethical practices and maintain transparency in their operations.
11. Promote fair competition and prevent monopolistic behavior in the banking sector.

Question 9.
Analyze the role of credit for development.
Answer:
Credit plays a crucial role in promoting economic development by:

1. Financing investments in businesses, infrastructure, and other productive sectors.
2. Stimulating consumer spending and purchasing power, which drives demand and economic growth.
3. Enabling individuals and businesses to invest in education, skills, and technology, leading to human capital development.
4. Facilitating entrepreneurship and innovation by providing funds for startups and small businesses.
5. Reducing poverty and promoting social inclusion by providing access to financial resources for marginalized communities.
6. Promoting economic mobility and upward social mobility by enabling individuals to improve their socioeconomic status.

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 should consider the following factors to decide whether to borrow from the bank or a moneylender:
1) Interest rates: Manav should compare the interest rates offered by the bank and the moneylender. Usually, banks offer lower interest rates than moneylenders.

2) Repayment terms: Manav should assess the repayment terms, including the duration of the loan and the flexibility in repayment schedules. Banks often offer more favorable repayment terms.

3) Credibility and trustworthiness: Manav should evaluate the reputation, credibility, and track record of the bank and the moneylender. Banks are regulated by the Reserve Bank of India and offer more security and protection to borrowers.

4) Collateral requirements: Manav should determine the collateral requirements imposed by both the bank and the moneylender. Banks may require more documentation and collateral, but they also offer a higher loan amount.

5) Accessibility and convenience: Manav should assess the accessibility and convenience of obtaining a loan from the bank or the moneylender. Banks may have more stringent procedures and paperwork compared to moneylenders.

6) Each individual’s decision may vary based on their specific circumstances and preferences.

Question 11.
In India, about 80 percent 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.
Answer:
a. In India, banks may be unwilling to lend to small farmers for several reasons. Firstly, small farmers often have irregular and unpredictable income streams, making it difficult for banks to assess their creditworthiness. Secondly, small farmers may lack sufficient collateral to secure loans from banks. Additionally, the transaction costs associated with lending to small farmers may be higher for banks, as they often operate in remote rural areas.

b. Small farmers have alternative sources from which they can borrow. One such source is moneylenders, who are often more flexible in terms of collateral requirements and may have personal relationships with borrowers.
Another source is cooperative societies, which pool resources from members and obtain loans from banks to provide credit to their members.

c. Terms of credit can be unfavorable for small farmers in several ways. They may face higher interest rates compared to larger farmers or urban borrowers. Additionally, lenders may require excessive collateral, limiting access to credit for small farmers who lack such assets. Moreover, informal lenders like moneylenders often charge exorbitant interest rates and may engage in harassing practices.

d. To ensure small farmers can access cheap credit, several measures can be taken. Governments and financial institutions can provide subsidies or guarantees to reduce the interest rates charged to small farmers. Furthermore, the establishment and promotion of self-help groups (SHGs) can provide small farmers with mutual support and access to credit at reasonable rates.

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) Majority of the credit needs of the “poor” households are met from informal sources.
ii) “Higher” costs of borrowing increase the debt-burden .
iii) “The Reserve Bank of India” 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.

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

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

• In a SHG, most of the decisions regarding savings and loan activities are taken by the “members” . (b)
• Formal sources of credit do not include “employers”. (c)

AP 10th Class Social Economics 3rd Lesson InText Questions and Answers Money and Credit

Activities

Question 1.
The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? Fill in the column.

Occupations	Reason for needing a Loan
Construction worker	–
Graduate student who is computer literate	–
A person employed in government service	–
Migrant labourer in Delhi	–
Household maid	–
Small trader	–
Autorickshaw driver	–
A worker whose factory has closed down	–

Next, classify the people into two groups based on whom you think might get a bank loan and those who might not. What is the criterion that you have used for classficiation?
Answer:

Occupations	Reason for needing a Loan
Construction worker	To purchase construction materials or tools for work
Graduate student who is computer literate	To pay for tuition fees or to purchase a computer
A person employed in government service	To finance personal expenses or emergencies
Migrant labourer in Delhi	To cover living expenses or to send money back home
Household maid	To cover daily living expenses or for emergencies
Small trader	To purchase inventory or to expand the business
Autorickshaw driver	To repair or purchase a new auto rickshaw
A worker whose factory has closed down	To support themselves during unemploymentor to start a new business

Classification of People based on Bank Loan Eligibility:

Eligible for Bank Loan :

• A person employed in government service.
• Graduate student who is computer literate.
• Small trader.

Not Eligible for Bank Loan:

• Construction worker.
• Migrant laborer in Delhi.
• Household maid.
• Autorickshaw driver.
• A worker whose factory has closed down.

The criterion used for classification is the stability of income and employment. People employed in government service and graduate students who are computer literate are more likely to have a steady source of income and stable employment, making them eligible for bank loans. On the other hand, occupations such as construction worker, migrant laborer, household maid, autorickshaw driver, and workers whose factories have closed down may have unpredictable or unstable income, making them less eligible for bank loans.

Page No. 78

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

1. The use of money makes it easier to exchange things because money serves as a widely accepted medium of exchange in transactions.
2. Instead of relying on barter, where goods or services are directly exchanged, money allows individuals to easily trade their products or services for money, which can then be used to buy other desired goods or services.

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

1. Examples of goods or services being exchanged through barter include a person wanting to sell shoes in exchange for wheat, or a shoe manufacturer exchanging shoes for money to purchase materials for production.
2. In terms of wages being paid through barter, employees may receive goods or services in exchange instead of receiving a monetary salary.

Page No. 82

Question 1.
M. Salim wants to withdraw Rs 20,000 in cash for making payments. How would he write a cheque to withdraw money?
Answer:
To write a cheque to withdraw money, M. Salim would need to follow these steps:

1. Write the date on the cheque.
2. Write the name of the person or organization to whom the cheque is being issued.
3. Write the amount of money to be withdrawn in words and figures.
4. Sign the cheque at the bottom right corner.
5. Submit the cheque to the bank for processing and withdrawal of the specified amount of money.
   

2. Tick the correct answer.
After the transaction between Salim and Prem.
1) Salim’s balance in his bank account increases, and Prem’s balance increases.
ii) Salim’s balance in his bank account decreases and Prem’s balance increases.
iii) Salim’s balance in his bank account increases and Prem’s balance decreases.
Answer:
When Salim and Prem engage in a transaction, the correct answer would be: Salim’s balance in his bank account decreases and Prem’s balance increases.

Question 3.
Why are demanel deposits corsidered money?
Answer:
Demand deposits are considered as money because they share the essential features of money. They can be widely accepted as a means of payment and can be used to settle transactions. Along with currency, demand deposits constitute money in the modern economy.

Page No. 86

Question 1.
Fill the following table.

	Salim	Swapna
Why did they need credit ?
What was the risk ?
What was the outcome ?

Answer:

	Salim	Swapna
Why did they need credit ?	To start a new business	To finance higher education.
What was the risk ?	Uncertainty in business success.	Difficulty in repaying the loan.
What was the outcome ?	The business became profitable.	Successfully completed. education

Question 2.
Supposing Salim continues to get orders from traders. What would be his position after 6 years?
Answer:
1) Supposing Salim continues to get orders from traders, his position after 6 years would depend on the profitability and growth of his business.

2) If Salim is able to maintain a steady stream of orders and generate consistent profits, his position could potentially improve.

3) He may be able to expand his business, invest in new equipment or technology, and hire more employees.

4) However, if his business faces challenges such as increased competition or changes in market demand, his position could be uncertain. It is important for Salim to adapt and innovate in order to sustain and grow his business over time.

Question 3.
What are the reasons that make Swapna’s situation so risky? Discuss factors pesticides; role of moneylenders; climate.
Answer:

1. The reasons that make Swapna’s situation risky include factors such as pesticides, the role of moneylenders, and climate.
2. Pesticides can be expensive and if they prove to be ineffective in protecting the crops, it can lead to crop failure and financial losses.
3. Moneylenders charge high interestrates, which can make loan repayments difficult, especially if the crops fail and the farmer is unable to generate enough income.
4. The unpredictable nature of the climate, such as droughts or floods, can also negatively impact crop yields and affordability of inputs.
5. These factors combined put Swapna at a higher risk of being caught in a debt-trap and facing financial hardships.

Page No. 88

Question 1.
Why do lenders ask for collateral while lending?
Answer:
1) Lenders ask for collateral while lending to mitigate the risk of potential default. Collateral serves as a form of security for the lenders, ensuring that they can recover their loan amount in case the borrower fails to repay the loan.

2) It provides lenders with an asset that they can claim if the borrower defaults on the loan. Collateral can be in the form of property, valuable assets, or financial instruments that hold value.

3) By asking for collateral, lenders can minimize their risk and have a guarantee for repayment.

Question 2.
Given that a large number of people in our country are poor, does it in any way affect their capacity to borrow?
Answer:
The capacity of borrowing for the poor in our country can be affected due to various reasons.
1) Firstly, the poor often lack the necessary documentation and financial records required by formal financial institutions to assess their creditworthiness.

2) They may not possess the necessary proof of income, employment, or collateral, making it difficult for them to meet the eligibility criteria set by lenders.

3) Additionally, the poor may have limited or irregular income, which can make it challenging for them to demonstrate the ability to repay the loan. This lack of proper documentation and stable income can negatively impact their capacity to borrow from formal sources.

Question 3.
Fill in the blanks choosing the correct option from the brackets. While taking a loan, borrowers look for easy terms of credit. This means _____ (low/high) interest rate, _____ (easy/ tough) conditions for repayment, _____ (less/more) collateral and documentation requirements.
Answer:
Low, easy, less

Page No. 92

Question 1.
List the various sources of credit in Sonpur.
Answer:
The various sources of credit in Sonpur include banks, cooperative societies, informal lenders (such as moneylenders), and traders.

Question 2.

Besides banks, the other major source of cheap credit in rural areas are the cooperative societies (or cooperatives). Members of a cooperative pool their resources for cooperation in certain areas. There are several types of cooperatives possible such as farmers cooperatives, weavers cooperatives, industrial workers cooperatives, etc. Krishak Cooperative functions in a village not very far away from Sonpur. It has 2300 farmers as members. It accepts deposits from its members. With these deposits as collateral, the Cooperative has obtained a large loan from the bank. These funds are used to provide loans to members. Once these loans are repaid, another round of lending can take place. Krishak Cooperative provides loans for the purchase of agricultural imptements, loans for cultivation and agricultural trade, fishery loans, loans for construction of houses and for a variety of other expenses.

Underline the various uses of credit in Sonpur in the above passages.
Answer:
The uses of credit in Sonpur include loans for the purchase of agricultural implements, loans for cultivation and agricultural trade, fishery loans, loans for construction of houses, and loans for various other expenses.

Question 3.
Compare the terms of credit for the small farmer, the medium farmer and the landless agricultural worker in Sonpur.
Answer:

1. The terms of credit for the small farmer, the medium farmer, and the landless agricultural worker in Sonpur may vary.
2. Different sources of credit may have different requirements in terms of interest rates, collateral, and documentation.

Question 4.
Why will Arun have a higher income from cultivation compared to Shyamal?
Answer:

1. Arun will, have a higher income from cultivation compared to Shyamal because Arun has taken a bank loan, which provides him with the necessary funds for investing in agricultural production.
2. With access to credit, Arun can purchase better inputs and equipment, leading to higher productivity and income.

Question 5.
Can everyone in Sonpur get credit at a cheap rate? Who are the people who can?
Answer:
Not everyone in Sonpur can get credit at a cheap rate.
The availability of cheap credit depends on various factors such as the borrower’s financial situation, collateral availability, and the lending practices of different sources. Generally, the richer households have better access to formal credit, while the poor have to rely on informal sources that may charge higher interest rates.

Question 6.
Tick the correct answer.
i) Over the years, Rama’s debt
a) will rise.
b) will remain constant.
c) will decline.
ii) Arun is one of the few people in Sonpur to take a bank loan because
a) other people in the village prefer to borrow from the moneylenders.
b) banks demand collateral which everyone cannot provide.
c) interest rate on bank loans is same as the interest rate charged by the traders.
Answer:

• Over the years, Rama’s debt will rise.
• Arun is one of the few people in Sonpur to take a bank loan because banks banks demand collateral which everyone cannot provide.

Question 7.
Talk to some people to find out the credit arrangements that exist in your area. Record your conversation. Note the differences in the terms of credit across people.
Answer:
The credit arrangements in different areas may vary. Through conversations with people, it can be observed that the terms of credit, such as interest rates and repayment conditions, can differ among individuals based on their financial situation, collateral availability, and their relationship with lenders.

Page No. 98

Question 1.
What are the differences between formal and informal sources of credit?
Answer:
The differences between formal and informal sources of credit are given below :

Formal Sources	Informal Sources
i) Among the formal sector people can take loans from banks and cooperatives.	i) The informal lenders include money lenders, traders, employers, relatives and friends, etc.
ii) The Reserve Bank of India supervises the functioning of formal sources of loans.	ii) There is no organisation which supervises the credit activities of lenders in the informal sector.
iii) Formal sector loans are given at a low rate of interest.	iii) Informal sector loans are given at a high rate of interest.
iv) It is the richer households who receive credit from formal sources	iv) The poor have to depend on the informal sources.
v) Formal sector loans require documentation and collateral. This is used as a guarantee to the lender until the loan is paid back.	v) Informal sector loans do not require collateral.

Question 2.
Why should credit at reasonable rates be available for all?
Answer:

1. Credit at reasonable rates should be available for all to enable the poor to get cheaper loans. usually they avoid loans due to high rate of internet.
2. If chapter loans are available for them, they will improve their condition by dint of this facility.

Question 3.
Should there be a supervisor, such as the Reserve Bank of India, that looks into the loan activities of informal lenders ? Why would its task be quite difficult ?
Answer:

1. Yes, there should be a supervisor for looking into the loan activities of informal lenders.
2. Its task is quite difficult because informal sector constitutes many people such as moneylenders, friends, relatives, traders, etc.
3. These people are involved in different kinds of businesses of their own besides lending. Also, they are not registered with the government.

Question 4.
Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households ?
Answer:
The share of formal sector credit is higher for the richer households compared to the poorer households because :

1. Richer households have better capacity to repay the loans within given frame of time.
2. Richer households have collateral and other necessary documents which are required by the banks and cooperatives. Poor people usually lack collateral or other assets.

Page No. 82 (Loan Activities of Banks)

★ What do you think would happen if all the depositors went to ask for their money at the same time?
Answer:

1. Banks will not be able to give money to the depositors if all ask for money at the same time.
2. There would be a severe cash crisis in the banks, as they would run out of money if all depositors went to the banks and withdrew their money at one.
3. They won’t be able to lend money to different business and markets.
4. There won’t be any daily activity in banks, so there won’t be any foot traffic. As a result, no loans can be provided as crop loans, which will impact the agricultural output for upcoming season.
5. The ratio of bank cash reserves will also fall sharply. The financial system will completely collapse as a result.

Page No. 88 (A house loan – Activity)

★ Megha has taken a loan of Rs 5 lakhs from the bank to purchase a house. The annual interest rate on the loan is 12 per cent and the loan is to be repaid in 10 years in monthly instalments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan. The bank retained as collateral the papers of the new house, which will be returned to Megha . only when she repays the entire loan with interest.

Fill the following details of Megha’s housing loan.

Loan amount (in Rupees)	–
Duration of loan	–
Documents required	–
Interest rate	–
Mode of repay	–
Collateral	–

Answer:

Loan amount (in Rupees)	5 Lakhs
Duration of loan	10 years
Documents required	Salary slip and employment records
Interest rate	12%
Mode of repay	Monthly installments
Collateral	New house papers