Money and Credit Class 10 Social Science Exam Questions

Objective Type Questions

Question. A deposit with a bank that can be withdrawn whenever the depositor likes to do so, is termed as –
(a) a demand deposit
(b) a time deposit
(c) a fixed deposit
(d) a legitimate deposit
Answer : (a) a demand deposit

Question. Which of the following does not constitute a part of informal credit in India ?
(a) Commercial Bank
(b) Moneylenders
(c) Friends and relatives
(d) Zamindars
Answer : (a) Commercial Bank 

Question. Banks do not give loans to –
(a) small farmer
(b) marginal farmers
(c) industries
(d) without proper collateral and documents
Answer : (d) without proper collateral and documents 

Question. The number of members in a typical SHG varies between –
(a) 5 and 10
(b) 15 and 20
(c) 15 and 25
(d) 20 and 30
Answer : (b) 15 and 20

Question. Which one of the following is not a limitation of the barter system ?
(a) lack of double coincidence of wants
(b) certain products can’t be divided
(c) most often double coincidence of wants is not available
(d) None of the above
Answer : (d) None of the above

Question. The functioning of the formal source of credit are supervised by –
(a) Government of India
(b) Reserve Bank of India
(c) Ministry of Finance
(d) None of the above
Answer : (b) Reserve Bank of India  

Very Short Answer Type Questions

Question. Complete the following table :
(Formal, Informal sector)

Type of Credit	Example
(i) _	Money lender, Relatives
(ii) _	Bank

Answer : (i) Informal sector (ii) Formal sector

Question. Who supervises the functioning of formal sources of loans?
Answer : The Reserve Bank of India.

Question. Correct the following statement and rewrite :Collateral is an assets and uses this as a guarantee until the loan is repaid and use this, that the borrower owns.
Answer : Collateral is an assets that the borrower owns and uses this as a guarantee to a lender until the loan is repaid.

Question. What things can be used as collateral ?
Answer : Land, building, jwellery, vehicle, livestocks, deposits with banks etc. can be used as collateral.

QuestionDefine Cheque. 
Answer : A cheque is a credit instrument through which the depositor instructs the bank to pay a specific amount from the depositor’s account to the person in whose name the cheque has been issued.

Question. What kind of economy is suitable for barter system?
Answer : Backward economy.

Question. Why one cannot refuse a payment made in rupees in India ? 
Answer : One cannot refuse a payment made in rupees in India because rupees is officially accepted as medium of exchange. The currency is authorised by the government of the country.

Question. How does money act as medium of exchange?
Answer : It acts as an intermediate in the exchange process and transactions. We can buy things if we have money in our pockets.

Question. What is Barter System?
Answer : Barter is a system of exchange in which goods are directly exchanged without the use of money.

Question. Why is the supervision of the functioning of formal sources of loans necessary?
Answer : It is necessary because banks have to submit information to the RBI on how much they are lending, to whom they are lending and what interest rate, etc.

Question. How does money solve the problem of double coincidence of wants?
Answer : Money solves the problem of double coincidence of wants by acting as a medium of exchange

Question. What is meant by double coincidence of wants?
Answer : Both parties, the seller and they buyers have to agree to sell and buy each other commodities. Goods are directly exchanged without the use of money.

Question. Why one cannot refuse a payment made in rupees in India?
Answer : One cannot refuse a payment made in rupees because it is accepted as a medium of exchange. The currency is authorized by the government of India.

Question. The main functions of money in an economic system facilitate.
Answer : The exchange of goods and Services

Question. What are the functions of a bank ?
Answer : To accept deposit and providing loan.

Question. What are the two benefits of banks ?
Answer : (i) Banks accept deposits, i.e., surplus funds from the depositors. (ii) Banks play an important role in economic development.

Short Answer Type Questions

Question. Look at a 10 rupee note. What is written on top ? Can you explain this statement ?
Answer : The top of the 10 rupee note presents the promise of the Governor of the Reserve Bank of India in these words – “I PROMISE TO PAY THE BEARER THE SUM OF TEN RUPEES.” This statement means that the RBI Governor promises to pay the value of ten rupee note in the form of other denominations of Indian currency equivalent to rupees ten. This promise of the Governor of RBI represents the legal status of the Government of India to this currency. 6. How do banks mediate between those who have surplus money and those who need money? [NCERT] Answer : Banks act as financial mediator or intermediaries between the saver and borrowers. Savers are the people who have surplus money which they do not require in the near future. They deposit such money by opening an account in the bank. Banks give interest on such deposits. On the other hand there are people who want credit for business requirements or meeting their personal needs. Banks provide credit or loan to such people and charge interest on that. The banks charge a bit higher rate of interest on loans and pay a bit lower rate of interest on deposits. This difference between rates of interest become source of income for the banks.

Question. How are deposits with the banks beneficial for individual as well as for the nation ? Explain with examples.
Answer : The deposits with banks are beneficial for individual as well as for nation :
(i) Banks accept deposit and also pay an amount as interest and in this way people earn money.
(ii) People’s money is safe with banks. (iii) It is easy for individuals to get credit who have savings and current account in the banks.
(iv) Poor people who are engaged in production need credit.
(v) Credit provided by the banks for government projects helps in the development of the nation.
(vi) Banks provide loans for the promotion of International trade.
(vii) Development of infrastructure is undertaken with the loans provided by the banks.

Question. Why do lenders ask for ‘collateral’ while lending ? Analyse the reasons.
OR Why do banks demand ‘collateral’ while issuing a loan ?
Answer : Lenders ask for collateral while lending to borrowers because—
(i) Lenders demand collateral (security) against loan. Collateral is an asset that the borrowers owns (such as land, building, vehicles, livestocks, deposits with Bank).
(ii) Every loan specifies an interest rate which the borrower must pay to the lender alongwith the repayment of the principal. (iii) Lender use the collateral as a guarantee until the loan (with interest if applicable) is repaid. (iv) If the borrower fails to repay the loan, the lender has a right to sell the asset or collateral to recover his payment.

Question. How can money be easily exchange itself for goods or services? Give example to explain.
Answer : Money acts as a medium to exchange itself for goods and services : A person holding money can easily exchange it for any commodity or service that he or she wants. Everyone
prefers to receive payments in money and exchanges the money for things he wants.
For example: A shoemaker wants to sell shoesin the market and buy wheat. The shoemaker will first exchange shoes for money and then exchange the money for wheat. If the shoemaker had to directly exchange shoes for wheat without the use of money, he would have to look for wheat growing farmer who not only wants to sell wheat but also wants to buy
the shoe in exchange. Both parties have to agree to sell and buy each other’s commodities. This process is very difficult, time consuming and unhealthy.

Question. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reason.
Answer : Modern currency is accepted as a medium of exchange without any use of its own because :
(i) Modern currency is authorised by the government of a country.
(ii) In India, the Reserve Bank of India issues all currency notes on behalf of the central government.
(iii) No other individual or organisation is allowed to issue currency.
(iv) The law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.
(v) No individual in India can legally refuse a payment made in rupees.

Question. Mention three points of difference between formal sector and informal sector loans (Board Term-II,
Answer : Formal Sector Loans: Include loans from banks and cooperatives. Features of formal sector loans are :
(i) Formal sectors provide cheap and affordable loans and their rate of interest is monitored by Reserve Bank of India.
(ii) Formal sector strictly follows the terms of credit, which include interest rate, collateral, documentation and the mode of repayment.
Informal Sector Loans: Include loans from moneylenders, traders, employers, relatives, friends, etc.

Question. What is meant by term of credit? What does it include?
Answer : Terms of credit are the requirements need to be satisfied for any credit arrangements. It includes interest rate, collateral, documentation and mode of repayment. However,
the terms of credit vary depending upon the nature of lender, borrower and loan. 

Question. How does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
Answer : Reserve Bank of India (RBI) supervises the banks in the following ways :
(i) It monitors the balance kept by banks for day-to-day transactions.
(ii) It checks that the banks give loans not just to profitmaking businesses and traders, but also to small borrowers.
(iii) Periodically, banks have to give details about lenders, borrowers and interest rate to RBI.
It is necessary for securing public welfare. It avoids the bank to run the business with profit motive only. It also keeps a check on interest rate of credit facilities provided by the bank. RBI makes sure that the loans from the banks are affordable and cheap.

Question. Name the various sources of credit in Sonpur.
Answer : There are various sources of credit which are available in Sonpur. These are as follows :
(i) Agricultural traders
(ii) Cooperative societies
(iii) Moneylenders
(iv) Commercial banks
(v) Relatives and friends, etc.

Question. Dhananjay is a government employee and belongs to a rich household, whereas Raju is a construction worker and comes from a poor rural household. Both are in need and wish to take loan. Create a list of arguments explaining who between the two would successfully be able to arrange money from a formal source. Why?
Answer : Dhananjay will be able to get a loan from a formal source.
Arguments :
Banks are not present everywhere in rural India.
Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
Bank loans require proper documents and collateral.
Absence of collateral is one of the major reasons which prevents the poor from getting bank loans
Informal lenders such as moneylenders, on the other hand, know the borrowers personally and hence, are often willing to give a loan without collateral.

Question. “The credit activities of the informal sector should be discouraged.” Support the statement with arguments.
OR
“The credit activities of the informal sector should be discouraged.” Support the statement with arguments.
Answer : Credit activities of the informal sector should be discouraged:
(i) Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers.
(ii) The poor households have to pay a large amount for borrowing
(iii) 85% of the loans taken by poor households in the urban areas are from informal sources.
(iv) Cheap and affordable credit is crucial for the country’s development.

Question. Formal credit meets only about half of the total credit needs of the rural people. Where does the other half come from?
Answer : (i) Compared to formal lenders, most of the informal lenders charge much higher interest rates on loans like 3% to 5% per month, i.e., 36% a year.
(ii) Besides the high interest rate, informal lenders impose various other tough conditions. For example, they make the farmers promise to sell the crop to him at a low price. There is
no such condition in the formal sector.
(iii) Loans taken by poor people from informal lenders sometimes, lead them to debt trap because of high interest rate.
(iv) The formal sources of credit in India still meet only about half of the total credit needs of the rural people.

Question. Why are the poor people depend on informal sources of credit ?
Answer : Poor people depend on informal source of credit because banking facilities are not available everywhere in rural India. Even if they are available, it is much more difficult to get a loan from a bank than taking a loan from informal sources because of wide ranging difficulties. Non-availability of collateral and a guarantor also prevents the poor from getting bank loan :

Question. How does the use of money make it easier to exchange things ? Given an example.
Answer : Money makes the things easier as : (i) It is in the form of authorised paper currency which gives the guarantee of the mentioned price to the owner. (ii) It has general acceptability. (iii) Its price remains constant compared to other commodities. (iv) Money can be stored easily and it doesn’t need much space.

Question. Describe the significance of the Reserve Bank of India.
Answer : The significances of the Reserve Bank of India are discussed below : (i) It issues currency notes on behalf of the central government.
(ii) It supervises the functioning of formal source of loans. RBI monitors the banks and ensures that they maintain minimum reserves as per the guidelines of Central Bank.
(iii) It also sees that banks give loans not just for profit making to traders but also to small borrowers, small cultivators etc.
(iv) Periodically banks have to submit information to RBI on how much they are lending, to whom, at what interest rate, etc.
(v) When commerical bank fails to get financial accommodation from any where, it approaches Central Bank as a last resort. Central Bank advances loan to such banks against approved securities. It ensure that the the banking system of the country does not suffer from any setback and money market remains stable. (vi) It acts as a banker to the government and is the custodian of the foreign exchange reserves of the economy.

Question. What are the main functions of a bank ?
Answer : Accepting deposits and providing loans are the main functions of a bank. Banks act as financial mediator or intermediaries between the savers and borrowers. Savers are the people who have surplus money which they do not require in the near future and they deposit such money with banks. On the other hand, there are people who want credit for business requirements or meeting personal needs. Banks provide credit or loan to such people and charges interest on particular loan.

Long Answer Type Questions

Question. What is money ? What are the modern forms of money ? How has it removed the difficulties of barter system ? OR ‘‘Money has made transactions easy.’’ Justify.
Answer : Money is anything which is generally acceptable as a medium of exchange. Money acts as an intermediary in the exchange process that is why it is called a medium of exchange. Currency (paper notes and coins) and demand deposits withdrawable by cheques are modern forms of money. Money has removed the problem of double coincidence of wants involved in the barter system. Under the barter system, the transactions between two persons were executed through the mutual exchange of goods. For example, person A has got rice and wants a blanket while person B has blanket and wants rice. Both of them have the things which the other one wants. So the transaction here can take place easily. The situation becomes difficult when one of them wants something which the other one does not have. For example, person B has got blanket but he wants milk instead of rice. Now he will have to search for a third person who has milk and wants rice. This becomes highly difficult. Money has made this situation easier by breaking a single exchange transaction for specific goods into two transactions of buying and selling by involving a medium of general acceptability, i.e., money. For example, person A may buy blanket from person B by giving him money while person B may buy milk from someone else who may or may not want rice by paying him that money any time. So the transactions become easier for everyone who does not have to care for mutual wants of goods.

Question. Why is it necessary for banks and cooperatives to increase their lending in rural areas? Explain.
OR
Why should credit at reasonable rates be available for all? 
Answer : Necessity for the banks and cooperative societies to increase their lending facilities in rural areas :
(i) Dependence on informal sources of credit reduces.
(ii) To provide more loan facilities to rural households.
(iii) To save rural people from exploitation.
(iv) It is important that the formal credit is distributed more equally so that the poor can benefit from the cheaper loans
(v) The bank and the cooperative societies have to increase the lending facilities to improve the livelihood of the people in the rural areas.

Question. Why is money transaction system better than barter system? Explain with examples.
Answer : (i) Transaction system is better than a barter system because the double coincidence of wants creates a problem.
(ii) For example, a shoe manufacturer wants to sell shoes in the market and wants to buy wheat. For this, he would look for a wheat growing farmer who would exchange his wheat with the shoes.
(iii) In a barter system, goods are exchanged without the use of money.
(iv) In contrast, in an economy where money is in use; money provides the crucial intermediate step.

Question. How are deposits with the bank beneficial for individual as well as for the nation? Explain with examples.
Answer : The deposits with banks are beneficial for the individual as well as for the nation:
(i) Banks accept deposit and also pay an amount as interest and in this way people earn money.
(ii) People’s money is safe with banks.
(iii) It is easy for individuals to get credit who have savings and current account in the banks.
(iv) Poor people who are engaged in production need credit.
(v) Credit provided by the banks for government projects helps in the development of the nation.
(vi) Banks provide loans for the promotion of International trade.
(vii) Development of infrastructure is undertaken with the loans provided by the banks.

Question. ‘‘The rupee is widely accepted as a medium of exchange.’’ Explain.
Answer : The rupee is widely accepted as a medium of exchange because :
(i) The currency is authorised by the government of the country.
(ii) In India, the Reserve Bank of India issues currency notes on behalf of the central government.
(iii) The law legalises the use of rupee as a medium of payment that cannot be refused in setling transactions in India.
(iv) No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange.

Question. How do banks play an important role in the economy of India? Explain.
Answer : Banks play an important role in developing the economy of India :
(i) They keep the money of the people in their safe custody.
(ii) They give interest on the deposited money to the people.
(iii) They mediate between those who have surplus money and those who are in need of money.
(iv) They provide loan to a large number of people at the low interest rate.
(v) They promote agricultural and industrial sector by providing loans
(vi) They also provide funds to different organisations.

Question. How can the formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures.
Answer : Formal sector loans can be made beneficial for poor farmers and workers in the following ways :
(i) Create awareness to farmers about formal sector loans
(ii) Process of providing loans should be made easier. It should be simple, fast and timely.
(iii) More number of Nationalized Banks/Cooperative Banks should be opened in the rural sector.
(iv) Banks and cooperatives should increase facility of providing loans so that dependence on informal sources of credit reduces.
(v) The benefits of loans should be extended to poor farmers and small scale industries.
(vi) While formal sector loans need to expand, it is also necessary that everyone receives these loans

Question. Explain the differences between formal and informal sources of credit.
Answer :

Question. Analyse the role of credit for development.
OR
‘Credit has its own unique role for development’, justify the statement with argument.
OR
What is credit ? How does credit play a vital and positive role ? Explain with an example.
OR
Describe the vital and positive role of credit with example. 
Answer : The credit facility is a boon for a country’s development. It represents the expanded purchasing power in the hands of the borrowers to meet their various requirements. It is the sacrifice of the savers which help the borrowers to expand their production and income of the country. It helps in generating those productive resources which could not have been generated in the absence of purchasing power. We can see the practical examples of various business houses like Reliance and Tata who with the help of credit established big business houses and generated large employment. Similar examples may be seen all around us where the people have taken loans to start various businesses, building homes and gaining education etc. All these have contributed a lot in the development of the country and raising the standard of living of the borrowers. But credit helps a borrower only when the terms of credit are reasonable. Unfortunately, these terms of credit are not very much favourable in the informal sources of credit which lead to the exploitation of borrower which may be harmful for the development. Hence, it is for this reason that the formal sources of lending like banks and cooperatives must expand so that the positive contributions of credit may lead to overall development.

Question. What are the merits and demerits of credit ?
OR
‘‘Credit is useful as well as harmful, it depends on the risk involved.’’ Support the statement with examples.
Answer : Credit is a facility in which a lender extends a loan to a borrower to fulfill his needs with a promise from the borrower to return the borrowed money to the lender with predetermined interest. Such credit may be in terms of money as well as goods and services. The credit facility has following merits and demerits : Merits :
(i) It provides much needed purchasing power to the borrower which he lacks.
(ii) It helps the borrower to mobilise the productive resources.
(iii) It helps to increase the production of the borrower and the country.
(iv) It helps to raise the income and standard of living of the borrower.
(v) It helps the lender to earn income in the form of interest.
(vi) It helps to utilise surplus money of lender which is not in immediate use. Demerits :
(i) It puts a burden of payment of excess amount on the borrower. The excess amount refers to the sum of principal and interest.
(ii) It puts the borrower in stress of losing an asset or reputation if he fails to return the borrowed money on time.
(iii) If the borrower looses the loan amount and is not supported by the financial or asset backup, he may fall into the debt trap
. (iv) If the terms of credit are unfavourable, the borrower may face difficulties in carrying on with the credit.

Question. Why is barter system not suitable for a modern economy ? What are the merits of money ?
Answer : Barter system is the system of transaction between two persons which is executed through the mutual exchange of goods. For example, person A has got rice and wants a blanket while person B has blanket and wants rice. Both of them have the things which the other one wants. So the transaction here can take place easily. Such kind of system is suitable for an economy where people have very limited wants, there are few goods and people live in vicinity of each other. Such kind of economy is normally a backward economy. But in modern economy, people’s wants are numerous and innumerable goods and services are produced. Rather, the share of services is much higher in comparison of goods. In such an economy barter system cannot function. The problem of double coincidence of wants will become so complex that it will convert the modern economy into a backward economy. Money has solved this problem of double coincidence of wants. The various merits of money are following :
(i) It has made the buying and selling of goods easier.
(ii) It has removed the problem of double coincidence of wants inherent in barter system.
(iii) It has helped in the expansion of economy.
(iv) It has general acceptability because of legal sanction provided by the government.
(v) It has helped in the production of multiplicity of goods.
(vi) It has removed the problem of limited choice for consumer.
(vii) It has removed the compulsion from the people to accept whatever is available in exchange for goods.
(viii) It has helped in the determination of price of goods and the calculation of national income.

Question . Compare formal sector loans with informal sector of loans regarding interest only.

Answer :

Question. What steps do you think are necessary for banks to extend credit facilities to the poor sections of the society ?
Answer : Following steps are necessary for the expansion of credit facilities to the poor sections of the society :
(i) The banking facilities must be expanded to every corner of the country whether urban or rural, so that the banking facilities can cover all the families.
(ii) An awareness campaign must be run continuously so that the poor sections can become aware of the banking facilities. (iii) Poor sections must be encouraged to open bank accounts and deposit money no matter how small that may be. This will develop a kind of banking habit among them. For this purpose, a bit higher interest rate may be offered to them.
(iv) Credit facility with softer terms must be designed for the poor sections.
(v) Process of credit must be made simpler for them.
(vi) Banks must provide as much as possible loans to cooperatives and self-help groups.
(vii) RBI must take steps to regularise the practices of informal sector.

Question. Read the source given below and answer the questions that follows:

The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. For instance, workers who receive their salaries at the end of each month have extra cash at the beginning of the month. They deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits. In this way people’s money is safe with the banks and it earns an amount as interest. People also have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.Demand deposits offer another interesting facility. It is this facility which lends it the essential characteristics of money (that of a medium of exchange). You would have heard of payments being made by cheques instead of cash. For payment through cheque, the payer who has an account with the bank, makes out a cheque for a specific amount. A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued.

i) The facility of cheques against demand deposits makes it possible to directly settle payments without the use of………
a) Deposit slip
b) Cash
c) Moneylender
d) Other funds
Answer : b) Cash

ii) How do banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers)?
a) Mutual funds
b) Share dividend
c) Loans
d) Deposits
Answer : c) Loans

Question. Read the source given below and answer the questions that follows:

Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal. In addition, lenders may demand collateral (security) against loans. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment. Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing. Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit. The terms of credit vary substantially from one credit arrangement to another. They may vary depending on the nature of the lender and the borrower.

(i) Which one of the following is the appropriate meaning of collateral?
(a) It is the sum total of money borrowed from banks.
(b) The amount borrowed from friends.
(c) It is an asset of the borrower used as guarantee to a lender.
(d) The amount invested in a business.
Answer : (c) It is an asset of the borrower used as guarantee to a lender.

(ii) What is the ‘collateral’ demand that lenders make against loans?
(a) Vehicle of the borrower
(b) Building of the borrower
(c) Both (a) and (b)
(d) None of these
Answer : (c) Both (a) and (b)

(iii) Which of the following is a major reason which prevents the poor from getting bank loans?
(a) Absence of collateral (security)
(b) Non-repayment of loans
(c) Higher Interest rates
(d) Documentation
Answer : (a) Absence of collateral (security)

(iv) Terms of credit do not include:
(a) interest rate
(b) collateral
(c) documentation
(d) lender’s land
Answer : (d) lender’s land