RBSE Class 10 Social Science Important Questions Economics Chapter 3 Money and Credit

Rajasthan Board RBSE Class 10 Social Science Important Questions Economics Chapter 3 Money and Credit Important Questions and Answers. 

RBSE Class 10 Social Science Important Questions Economics Chapter 3 Money and Credit

Objective Type Questions 

Question 1. 
Money is important because it-
(a) acts as a medium of exchange 
(b) removes the difficulties of barter system of exchange
(c) facilitates production and consumption
(d) All of the above 
Answer:
(d) All of the above 

Question 2. 
The currency is issued in India by-
(a) State government 
(b) Central government 
(c) Reserve Bank of India
(d) None of the above 
Answer:
(c) Reserve Bank of India

Question 3. 
The modern form of money is-
(a) Paper notes 
(b) Cheques 
(c) Credit card
(d) All of the above 
Answer:
(d) All of the above

Question 4. 
The conditions of loan include-
(a) Determination of interest rate 
(b) Collateral 
(c) Documentation
(d) All of the above 
Answer:
(d) All of the above

Question 5. 
Informal sector of credit includes-
(a) Money lenders 
(b) Zamindars
(c) Relatives 
(d) All of the above 
Answer:
(d) All of the above

Question 6. 
A common example of a supporting debtor is-
(a) land
(b) Bank deposits 
(c) Animal
(d) All of the above 
Answer:
(d) All of the above

Question 7. 
In the year 2012, which was the main source of credit for rural families in India-
(a) Money-lender 
(b) Commerical bank 
(c) Relatives and friends
(d) None of the above 
Answer:
(a) Money-lender

Question 8. 
Which organisation oversees the activities of lenders in the informal sector ? 
(a) Reserve Bank of India 
(b) State Government 
(c) Central Government
(d) None of the above 
Answer:
(d) None of the above

Question 9. 
Which of the following is the correct statement ? 
(a) Formal sector lenders often charge higher interest. 
(b) Informal sector lenders often charge higher interest. 
(c) Poor families in cities mostly get loans from formal sources. 
(d) All of the above.
Answer:
(b) Informal sector lenders often charge higher interest.

Fill in the blanks 

1. In India, during currency notes in the denomination of ₹ 500 and ₹ 1,000 were declared invalid. 
2. In a barter system, goods are directly exchanged without the use of ................ 
3. Money acts as an intermediate in the exchange process, it is called a ................
4. Banks use the major portion of the deposits to extend .................. 
5. The ......................... supervises the functioning of formal sources of loans.
Answer:
1. November 2016 
2. money 
3. medium of exchange 
4. loans 
5. Reserve Bank of India. 

Very Short Answer Type Questions 

Question 1. 
Write any one condition of the credit. 
Answer:
Interest rate.

Question 2. 
Name one source to provide cheaper credit in rural areas.
Answer:
Co-operatives

Question 3. 
Name one source to provide credit in formal sector.
Answer:
Bank 

Question 4. 
What is a Bank ?
Answer:
Bank is a financial institution which accept deposits from public and provide loans to them.

Question 5. 
What do you mean by demand deposits ?
Answer:
Those deposits which can be withdrawn any time through cheques or ATMs are known as demand deposits.

Question 6. 
What are formal financial institutions ?
Answer:
Commercial banks, Co-operatives, rural banks etc. are formal financial institutions.

Question 7. 
Why do banks keep a small part of deposits in the form of cash ?
Answer:
This is kept as a provision to pay the depositors who might come to withdraw money from the bank on any given day.

Question 8. 
Name any one informal source to provide credit in India.
Answer:
Moneylenders

Question 9. 
Write any one function of commercial banks in India.
Answer:
To accept deposits from public.

Question 10. 
Write anyone important function of money.
Answer:
Money works as a medium of exchange

Question 11. 
Why is money called as a medium of exchange?
Answer:
Money works as a mediator for sale and purchase of goods or articles, so money is called a medium of exchange.

Question 12. 
Write any two modern forms of money.
Answer:

1. Currency 
2. Demand deposits. 

Question 13. 
What do you mean by a cheque ?
Or 
What is a bank cheque ?
Answer:
It is a paper instructing the bank to pay a specific amount from the person's account to the person in whose name it has been written.

Question 14. 
Write any two points of importance of credit.
Answer:

1. Credit is helpful in increasing income of the people.
2. Credit is helpful to complete commercial needs of the people.

Question 15. 
What do you mean by an supportive collateral?
Answer:
Supportive collateral is a asset, whose owner is a borrower and he uses this asset to provide as a guarantee to the lender.

Question 16. 
What are the conditions of credit ?
Answer:
Interest rate, collateral, necessary documents and modes of payment are known as conditions of credit.

Question 17. 
What types of loan are provided by Kisan cooperatives?
Answer:
Kisan cooperatives provide loans for purchasing agricultural equipments, doing farming and fishing and constructing houses etc.

Question 18. 
Who are included in informal sources of credit?
Answer:
Money lenders, zamindars, employers, friends and relatives etc. are included in informal sources of credit.

Question 19. 
What do you mean by money ?
Answer:
Money is a commodity which is generally used as a medium of exchange.

Question 20. 
What do you mean by barter system of exchange?
Answer:
In barter system of exchange goods are exchanged in place of goods.

Question 21. 
Write any two advantages of borrowing from formal sector.
Answer:

1. Availability of loan at lesser rate of interest.
2. Long term availability of loans. 

Question 22. 
Who issues currency in India ?
Answer:
Reserve Bank of India.

Question 23. 
Write any two sources of formal credit in rural India.
Answer:

1. Bank 
2. Co-operatives.

Question 24. 
List out one point of difference between formal and informal sources of credit.
Answer:
The interest rate of the loan is less informal sector than that of the informal sector.

Question 25. 
Write any two demerits of sources of informal credit.
Answer:

1. High rate of interest
2. Exploitation of the borrower.

Question 26. 
Write any two difficulties of barter system.
Answer:

1. Difficulty in determination of value of goods and services.
2. Lack of double coincidence of wants. 

Short Answer Type Questions (Type-I)

Question 1. 
What is money ? Explain any three characteristics of modern Indian money.
Answer:
Money is a commodity which is used as a medium of exchange.

Characteristics:

• Paper notes and coins are modern Indian currency.
• Reserve Bank of India issues Indian currency.
• Money is accepted for trade purposes in India.

Question 2. 
Explain the functions of money.
Answer:

• Measurement of ValueMoney works as a measurement of value. The prices of various goods and services are determined in the form of money.
• Medium of Exchange- Goods and services are easily exchanged through money.

Question 3. 
Explain any two demerits of barter system of exchange.
Answer:

1. In barter system it is difficult to determine the value of goods and services.
2. Barter system lacks divisibility, which leads to difficulties in exchange.

Question 4. 
Write the importance of Banks.
Answer:

• People can deposit their extra income in Banks and can earn income through savings.
• Banks provide loans to public for long period at lesser rate of interest which they can use for business purposes.

Question 5. 
Write any two benefits of taking loan from co-operatives in rural areas.
Answer:

1. The terms of credit are easy and people can avail loans at lesser rate of interest from co-operatives.
2. Co-operatives save the borrowers from the exploitation by money lenders and zamindars.

Question 6. 
What do you mean by formal sector of credit ?
Answer:
Formal sector of credit includes commercial banks, co-operatives, Gramin bank etc. These sources provide loan on easy terms and for a longer period of time.

Question 7. 
What do you mean by informal sector of credit?
Answer:
Informal sector of credit includes friends, zamindars, money lenders, big farmers, employers etc. Usually informal sector provides loan at higher rate of interest.

Short Answer Type Questions (Type II)

Question 1. 
Give any three suggestions to increase activities of co-operatives in the rural areas.
Answer:
Following are the suggestions to increase activities of co-operatives in rural areas-

1. The number of co-operatives should be increased in rural areas.
2. The share of poor families in co-operative credit should be increased.
3. More and more people should be joined with co-operatives and government should contribute in establishment of co-operatives.

Question 2. 
Why we need Bank? What kind of services are provided by Banks ? What is the major source of income of bank?
Answer:
Need of Bank- People save money. To keep saved money safely and to get interest on that money banks are necessary. Bank provides loans at lesser rate of interest on easy terms. Banks contribute to the economic development of a country.

Services by Bank- Banks provide credit facility through cheques. In the modern times banks also provide many other facilities.

The Sources of Income of Bank- Banks provide credit to borrowers on interest and banks provide interest to customers on their deposits. The difference of interest provided by bank and charged by bank is the major source of income of the banks.

Question 3. 
Explain the credit function of a Bank.
Answer:
Banks accept deposits from the public. These are known as demand deposits. Banks provide credit to people on the basis of these deposits. After keeping a portion of deposits as reserves, banks lend money to people who demand as loan and banks charge interest. The important function of a bank is to provide loan through which banks earn income. 

Question  4. 
Write a short note on terms of credit.
Answer:
While, giving loan, the lender specifies certain terms and conditions relating to the loan to be followed by the borrower which is known as terms of credit. It includes-

• interest rate, 
• collateral
• documentation, 
• The mode of repayment etc.

Before giving and taking the loan both sides decide the terms of credit which are followed by both of the sides. Collateral and rate of interest are important conditions of loans. Usually the terms of loans are different in different types of loans.

Question 5. 
Analyse the features of formal and informal sectors credit.
Answer:
Characteristics of formal sector credit:

• There is lower rate of interest charged by formal sector.
• Usually rich people avail loans from this source.
• The loans are provided for long period of time by formal sector.
• These sources do not exploit borrowers.
• The government rules and regulations are followed by this sector.

Characteristics of Informal Sector:

• Informal sector provides credit at higher rate of interest
• Poor people avail loans through these sources.
• Borrowers are exploited by informal sector.
• There is lack of government control on these sources.

Question 6. 
Explain the main problems of barter system.
Answer:
Following are the major problems of barter system-

• There is lack of double coincidence of wants under barter system. A seller has to find out a person who wants to buy seller's goods and the same time who must have what the seller wants.
• There is difficulty in deciding the value of goods and services under barter system.
• Barter system lacks divisibility or in the state of indivisibility there is difficulty in exchange of goods.
• In barter system there is a difficulty in storage of goods.

Question 7. 
What are the various sources of credit in rural areas ? Which source of credit is the most convenient source? Why is this the most convenient source of credit ? Give reasons.
Answer:
There are various sources of credit in rural areas-Zamindars, money lenders, businessman, rural bank, friends, relatives, cooperatives, self help groups etc.

The most convenient source of credit is money lender, because-

• Banking facilities are not available in abundance in rural areas whereas moneylenders are easily available in all areas.
• Money lenders provide loans for a long period without many formalities.
• Money lenders provide loans for all purposes even for consumption purposes.
• Loans are available at any time without delay from money lenders.

Question 8. 
Explain any four sources of credit for rural families in India.
Answer:
Following are the four major sources of credit in rural families in India
(1) Money Lenders: Money lenders provide loans on easy terms. They charge higher rate of interest and they provide loans for unproductive purposes.
(2) Co-operative Committees: They provide loans for agricultural purposes at cheaper rate of interest. They also provide loans to meet other expenses.
(3) Gramin Banks: They provide loans on lesser rate of interest but there are many formalities to be completed for availing the credit. They provide loans for longer period.
(4) Friends and Relatives: Loans are also provided by friends and relatives. It is very easy to take loan from this source.

Question 9. 
Explain the demerits of informal sources of credit in India.
Answer:
The demerits of informal sources of credit in India are as follows-

• Informal sector provides loans on higher rate of interest.
• Terms of loans are difficult in informal sector.
• If farmers are unable to repay loans on time, the money lenders purchase their products at lesser price and do not provide wages for work.
• Borrowers are exploited through wrong written facts.
• Borrowers are caught in debt-trap after some period if they avail loans from informal sector.

Question 10. 
Explain the importance of selfhelp groups.
Answer:
The importance of self-help groups can be explained from following points-

• Self-help groups consist certain members who pool their savings and constitute a fund which is further used in making finance and advances to other members.
• The SHGs help borrowers to overcome the problem of lack of collateral.
• They can get timely loans at a reasonable interest rate.
• They help women to become self-reliant.
• The regular meetings of the group provide a platform to discuss and act on various social issues such as health, nutrition, domestic violence etc.

Question 11. 
Give any three suggestions to increase formal sources of loan in rural areas of India.
Answer:
Formal sector of credit includes banks, co-operative societies and self-help groups. Following measures can be taken to increase their number in rural areas-

• Number of commercial banks and cooperative societies should be increased in rural areas.
• The share in loan to rural poor from informal sector should be increased
• Villagers should be encouraged to form more self-help groups and government should contribute more in the development of selfhelp groups.

Long Answer Type Questions

Question 1. 
In your point of view, between barter system and monetary system which one is best and why ?
Answer:
In my point of view, monetary system is better than barter system, because: 

• In monetary system, people use money for exchange purposes. Everybody sells their goods in market for money and purchase goods of their requirement with the help of money.
• In barter system, goods are exchanged with goods and double co-incidence of wants are also required. It means both the sides should be ready to exchange their goods.
• In monetary system money reduces the requirement of mediator and makes exchange easier.
• In monetary system commodities can easily be stored in the form of money.

So it is clear that monetary system of exchange is better than barter system.

Question 2. 
Explain the role of money in an economy.
Answer:
The role of money in an economy can be explained with the help of the following points .
(1) Role of Money in Exchange: Money is accepted as a medium of exchange. Goods and services are bought and sold with the help of money.

(2) Role of Money in Business: Business activities can be made easily with the help of money because with the help of money goods can be purchased from one place and can be sold to another place.

(3) Role of Money in Budget: Government revenue and government expenditure can be measured in terms of money. The fiscal policies can be framed with the help of money. Budget is also presented in the form of money.

(4) Role of Money in Measurement of National Income: National income can be measured in terms of money which represent the living standard of nation. Without money measurement of national income is difficult and living standard can not be shown.

(5) Role of Money in Production: Production is not possible without factors of production. The payment of various factors of production is done with the help of money. For example rent for land, wages to labour, interest on capital and profit to entrepreneur.

Question 3. 
Explain the functions of commercial banks in India.
Or 
Who issues currency notes in India ? Explain the three functions of banks.
Answer:
Reserve Bank of India issues currency notes in India
Functions of Banks
1. To Accept Deposits: The most. important function of banks is to accept deposits from publics. People can deposit their cash balances with bank in either of the following accounts-(i) Fixed deposit account, (ii) Current account, (iii) Savings deposit account, (iv) Recurring deposit account etc. No interest is paid by banks on the money kept in current account.

2. Advancing of Loans: Commercial banks provide various types of loans to the borrowers in either of the following forms (i) cash credit, (ii) term loans, (iii) overdraft, (iv) discounting of bills of exchange.

3. Credit Creation: Commercial banks create credit on the basis of primary deposits. Credit creation is the process of expansion of credit through derivative deposits. It is done! by the commercial banks with the motive of earning profit.

4. Transfer of Funds: Through cheque, draft, debit card, cash card etc. banks transfer money from the account of one person to another person's account.

Question 4. 
How does bank credit play a positive role in production process. Explain with the help of an example.
Answer:
Bank provides loans to the public on the basis of primary deposits to fulfil the lending requirement of the public. Bank provides loans for long period of time at lesser interest rate. Banks do not provide loans only to profit earning businessmen but also to small farmers, small businessmen etc.

Bank credit plays a positive role in production process because through bank credit people can do business, farmers can grow any crop and small industries can be set up etc.

Cheap and affordable credit leads to higher income of the people and many people can borrow loan at cheaper rates for a variety of needs. They can grow crops, do business, set-up small scale industries etc. They can setup new industries or trade in goods. All these activities lead to the country's development.

For example, Arun has 7 acre of land, he borrowed from bank for production of potatoes at 8.5% per annum interest which can be returned within three years. When the crop is ready, Arun will sell some part of crop and repay the loan and rest of the produce will be kept in cold storage and be borrowed on that crop. Through new loan he fulfils his daily needs and is prepared for new crop. Through this his income increases.

Question 5. 
Explain any two demerits of loans from informal sector. How are loans from formal sector better than that of informal sector ?
Answer:
Short-comings of Informal Sector-Following are the shortcomings of credit from informal sector-
(1) Government does not have any control on informal sector so the interest rate is very high on these loans.

(2) Borrowers are exploited in many ways in informal sector, through borrowers they reach to the situation of debt-trap. These sources provide loans for unproductive purposes. Due to this people cannot increase their paying capacity and burden of loans increases gradually.

With reference to comparison of informal sector, formal sector provides loans at cheaper rate of interest. Formal sector does not exploit people and it is helpful in increasing income of the people.

Question 6. 
What do you understand by loan ? Explain the various sources of providing credit.
Answer:
Credit refers to an agreement in which the lender supplies the borrowers with money, goods and services in return for the promise of future payments.

Sources of Credit in India: Sources of credit are divided in two parts in India-
1. Formal Sources: Formal sources of credit include commercial banks, cooperative committees, rural banks etc. These sources provide loans at cheaper rate of interest. Reserve Bank of India controls formal sources of credit. Formal sources of credit save the people from exploitation of landlords and zamindars. 56% of credits in rural areas were provided by formal sources in 2012.

2. Informal Sources: In India informal sector includes zamindars, landlords, big farmers, friends and relatives. They provide loans at high rate of interest. They exploit borrowers in different ways. In rural areas small farmers, labours are dependent on these informal sources.

Question 7. 
Explain the two different situations of credit and describe the necessary conditions of credit through banks.
Answer:
Two Situations of Credit:
There are two types of credit situations

1. Positive Credit
2. Negative Credit

1. Positive Credit: Positive credit is useful in increasing the income of the person. For example, Salim is a shoe manufacturer. He obtains credit to meet the working capital needs of production. The credit helps him meet the ongoing expenses of production, complete production on time and thereby increases his earnings. Credit plays a vital and positive role in this situation.

2. Negative Credit: When the borrower is unable to pay loan and falls into a debt trap, under this situation borrower is required to sell his assets to repay his loan. Instead of improving his earnings, this situation worsens his economic condition.

Necessary conditions to avail loans. Terms of conditions include followings-

• Interest rate 
• Collateral
• Documentation required
• Mode of payment.

For example, To avail a housing loan Megha was required to present her salary slip and house documents as a collateral.

Question 8. 
Compare the contribution of formal and informal credit between urban poor and rich households. Give any two suggestions to increase the role of formal sector in credit creation.
Answer:
Comparison of the contribution of formal and informal sector to the loans of urban poor and rich-

• The lenders of informal sector charge high rate of interest in comparison to formal sector. So it is costly to avail loans from informal sector.
• 85% needs of urban poor and 10% of loan needs of urban rich are completed through informal sector.
• 15% of poor families and 90% of rich families of urban areas fulfil their needs formal sources of credit.

Suggestions to increase the share of formal sector in creation of credit-

• More self-help groups should be setup. The members pool their savings and after some time, it becomes a large amount which is used to give loans to the needy ones at a very nominal rate of interest.
• The share of formal sector in total credit should be increased and formal sector. should provide more loans to poor section of society.