Short Answer – Class 10 – Social Science -Economics-Chapter : 3 :Money and Credit

Short Answer – Class 10 – Social Science -Economics-Chapter : 3 :Money and Credit

Q1. “Cheap and affordable credit is crucial for the country’s development.” Assess the statement.

Ans : Due to the following three reasons, cheap and affordable credit is important for the country’s development:

a. It will help people to take credit for variety of reasons.

b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest.

c. It will be easy for the people to repay the loan.

Q2. “Banks are efficient medium of exchange.” Support the statement with arguments.

 Ans : Yes, it is true to say that Banks are efficient medium of exchange. People have extra cash with them.

Those having extra cash open a bank account in their name and deposit the surplus money there.

Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

Rest of the amount is used to extend loan to the borrowers.

Q3. Explain any three loan activities of banks in India.

Ans :The three loan activities of the banks are:

a. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.

b. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

c. Rest of the amount is used to extend loan to the borrowers.

Q4.  Illustrate with examples the role of loan in business.

Ans : The loan plays two different role in business:

a. Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money.

 For example,

Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan.

 b. Sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation, the borrower is not able to repay the loan and many a times caught into the situation of debt-trap.

For example,

 a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure.

 So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Q5.  Describe the utility of Cheque.

Ans :  A Cheque is a paper that instructs the bank to pay a specific amount from the account holder’s account to the person in whose name the Cheque has been issued.

Demand deposits are accepted as a means of payment because the depositors get the facility of Cheque against it, which is used to settle the transaction without the use of money.

Q6. How can money be easily exchanged for goods and services? Give an example to explain.

Ans : If a shoe manufacturer wants to sell shoes and buy wheat, then first he has to look for a wheat-growing  farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and that money can used to buy wheat.

Q7. The credit activities of the informal sector should be discouraged.” Support the statement with arguments.

Ans : It is true to say that the credit activities of the informal sector should be discouraged. It is due to the following reasons:

a. They charge high rate of interest in comparison to that of formal sector.

 b. Thus the cost of borrowing is high.

c.  Due to high cost of borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development and ultimately will affect the country’s economic development.

Q8. “Deposits with the banks are beneficial to the depositors as well as to the nation.” Examine the statement.

 Ans : Those having extra cash open a bank account in their name and deposit the surplus money there.

Their money is safe with the banks and they get some interest rate on the amount they have deposited.

Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

Rest of the amount is used to extend loan to the borrowers. This helps other people to run and expand their business which will increase the individual income and finally the country’s income.

Q9. ‘Credit has its own unique role for development.’ Justify the statement with arguments.

 Ans : Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money.

For example,

Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan.

Sometimes, credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult.

In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap.

For example, a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure.

So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

 Q10. How is money transferred from one bank account to another bank account? Explain with an example.

Ans : In modern times we have different options to transfer the money from one bank account to another such as through Cheque, draft, internet banking etc.

 A Cheque is a paper that instructs the bank to pay a specific amount from the holder’s account to the person in whose name the cheque has been issued.

In case of a Cheque, a person writes a Cheque in the name of the person in whose account the money is to be transferred.

Then it is deposited by the person in his/ her bank. The bank transfers the amount to the person on whose name the cheque is drawn.

Q11. “Poor households still depend on informal source of credit.” Support the statement with examples.

 Ans : Yes, it is true that the poor households still depend on informal source of credit.

It is due to the following reasons:

 a. Banks are not present everywhere.

b. Collateral is required by the formal sector loan providers.

c. Many a time, the moneylenders know the borrowers personally and willing to pay the loan without any collateral.