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    Money and Credit-Ncert Solutions

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    Safwa Khasim
    This document contains summaries of key concepts around money, credit, and banking in India: 1) Taking out loans in high risk situations can often make the borrower's situation worse if the risk negatively impacts their ability to repay the loan. They may lose collateral used as a guarantee or be forced to sell assets. 2) Money solves the problem of double coincidence of wants in barter systems by acting as a medium of exchange. With money, people can exchange goods for currency and then use that currency to purchase anything else they need rather than finding someone who wants to trade directly. 3) Banks mediate between those with surplus money by accepting deposits and lending most of that money out as loans to those who need

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    Money and Credit-Ncert Solutions

    Uploaded by

    Safwa Khasim
    190 views4 pages
    This document contains summaries of key concepts around money, credit, and banking in India: 1) Taking out loans in high risk situations can often make the borrower's situation worse if the risk negatively impacts their ability to repay the loan. They may lose collateral used as a guarantee or be forced to sell assets. 2) Money solves the problem of double coincidence of wants in barter systems by acting as a medium of exchange. With money, people can exchange goods for currency and then use that currency to purchase anything else they need rather than finding someone who wants to trade directly. 3) Banks mediate between those with surplus money by accepting deposits and lending most of that money out as loans to those who need

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    MONEY AND CREDIT-NCERT SOLUTIONS

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    This document contains summaries of key concepts around money, credit, and banking in India: 1) Taking out loans in high risk situations can often make the borrower's situation worse if the risk negatively impacts their ability to repay the loan. They may lose collateral used as a guarantee or be forced to sell assets. 2) Money solves the problem of double coincidence of wants in barter systems by acting as a medium of exchange. With money, people can exchange goods for currency and then use that currency to purchase anything else they need rather than finding someone who wants to trade directly. 3) Banks mediate between those with surplus money by accepting deposits and lending most of that money out as loans to those who need

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    190 views4 pages

    Money and Credit-Ncert Solutions

    Uploaded by

    Safwa Khasim
    This document contains summaries of key concepts around money, credit, and banking in India: 1) Taking out loans in high risk situations can often make the borrower's situation worse if the risk negatively impacts their ability to repay the loan. They may lose collateral used as a guarantee or be forced to sell assets. 2) Money solves the problem of double coincidence of wants in barter systems by acting as a medium of exchange. With money, people can exchange goods for currency and then use that currency to purchase anything else they need rather than finding someone who wants to trade directly. 3) Banks mediate between those with surplus money by accepting deposits and lending most of that money out as loans to those who need

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    MONEY AND CREDIT-NCERT SOLUTIONS

    1. In situations with high risks, credit might create further


    problems for the borrower. explain.
    In situations with high risks, credit might create further
    problems for the borrower. This is also known as a debt-trap.
    Taking credit involves an interest rate on the loan and if this
    is not paid back, then the borrower is forced to give up his
    collateral or asset to use as guarantee, to the lender. If a
    farmer takes a loan for crop production and the crop fails,
    loan payment becomes impossible. To repay the loan the
    farmer may sell a part of his land making the situation worse
    than before. Thus in situations with high risk, if the risk
    affects the borrower badly, then he ends up losing up more
    than he would have without the loan.
    2. How does money solve the problem of double coincidence of
    wants? Explain with an example of your own.
    Double coincidence of wants is an essential feature of the
    barter system. In the barter system, a seller needs to find a
    buyer who can purchase the commodity and vice versa. This
    condition is extremely difficult to fulfil.
    By serving as a medium of exchanges, money removes the
    need for double coincidence of wants and difficulties
    associated with the barter system. For example, it is no
    longer necessary for the farmer to look for a book punisher
    who will buy his cereals at the same time sell him books. All
    he has to do is find a buyer for his cereals. If he has
    exchanged his cereals for money, he can purchase any
    goods or services which he needs. This is because money
    acts as a medium of exchange.
    3. How do banks mediate between those who have surplus
    money and those who need money?
    People deposit money in their bank accounts. Banks accept
    deposits and also pay an amount as interest on deposits.
    Banks keep a small portion of deposits as cash (15%) for
    themselves (to pay the depositors on demand). Banks use
    the rest of the deposits to extend loans to those who need
    money. Banks charge a higher interest rate on loans than
    what they offer on deposits. This way banks mediate
    between those who have surplus money and those who
    need money.
    4. Why do we need to expand formal sources of credit in india?
    We need to expand formal sources of credit in india due to:
    ● To reduce dependence on informal sources of credit
    because informal sources charge high interest rates
    and do not benefit the borrower
    ● Cheap and affordable credit is essential for a country's
    development.
    5. What is the basic idea behind the SHGs for the poor?
    Explain with your own words
    A SHG is a group of 15-20 members based in rural areas
    who pool their savings together to provide loans for their own
    members.the main objectives of the SHGs are
    ● To provide a financial resource for the poor through
    organising the rural poor, especially women into SHGs
    ● To collect savings of their members
    ● To provide loans without collateral
    ● To provide loans at a minimum rate of interests
    ● Provide platform to discuss and act on a variety of
    social issues such as education, health, nutrition,
    domestic violence etc
    ● To make rural women self sufficient.
    6. What are the reasons why the banks might not be willing to
    lend to certain borrowers?
    The banks might not be willing to lend certain borrowers due to
    the following reasons:-
    ● Banks require proper documents and collateral as security
    against loans. Some people fail to meet these requirements.
    ● The borrowers who have not repaid previous loans, the
    banks might not be willing to lend them further
    ● Irregular wages and no fixed job because it increases the
    chance of non-repayment
    7. In what ways does the Reserve Bank of India supervise the
    functioning of banks? Why is this necessary?
    RBI manages the functioning of banks in the following ways:
    ● It monitors the bank in maintaining the cash balance
    ● RBI sees that loans are not just given to profit-making
    organisations but also to small cultivators and small scale
    industries
    ● The commercial banks have to submit information to the RBI
    on how much they are lending, to whom, at what interest
    rate etc
    8. Analyse the role of credit in development
    Cheap and affordable credits play a crucial role in a country’s
    development. There is a huge demand for loans for various
    economic activities. The credit helps people to meet the ongoing
    expenses of production and thereby develop their business. Many
    people can borrow for a variety of reasons. They could grow
    crops, do business, set up industries etc. in this way credit plays a
    vital role in the development of a country. India is primarily an
    agricultural country. The timely advancing of credit to the farmers
    at low rate of interest helps the farmers in increasing their
    production.

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