Money and Credit
Short Questions
1. What is meant by the term “double coincidence of wants”?
Answer: It refers to the situation in a barter system where two people each have something the other wants.
2. Why is money called a medium of exchange?
Answer: Money acts as an intermediate in the exchange process, eliminating the need for barter.
3. Who issues currency notes in India?
Answer: The Reserve Bank of India issues currency notes on behalf of the Central Government.
4. What are demand deposits?
Answer: Deposits in bank accounts that can be withdrawn anytime are called demand deposits.
5. What is a cheque?
Answer: A cheque is a paper instructing a bank to pay a specific amount from one’s account to another person.
6. What is collateral?
Answer: Collateral is an asset owned by the borrower used as security for a loan.
7. What are the two modern forms of money?
Answer: The two modern forms of money are currency and bank deposits.
8. What is credit?
Answer: Credit refers to an agreement in which a lender provides money or goods in return for future payment.
9. What is meant by debt trap?
Answer: When a borrower is unable to repay loans and falls into more debt, it is called a debt trap.
10. What is the main source of income for banks?
Answer: The difference between the interest charged on loans and the interest paid on deposits is the bank’s main income.
11. What are formal sources of credit?
Answer: Formal sources of credit include banks and cooperative societies.
12. What are informal sources of credit?
Answer: Informal sources of credit are moneylenders, traders, and employers.
13. What is the full form of SHG?
Answer: SHG stands for Self-Help Group.
14. Who supervises the functioning of banks in India?
Answer: The Reserve Bank of India supervises the functioning of banks.
15. Who founded the Grameen Bank of Bangladesh?
Answer: Professor Muhammad Yunus founded the Grameen Bank of Bangladesh.
Long Questions
1. ow does money solve the problem of double coincidence of wants?
Answer: In a barter system, both buyers and sellers must need each other’s goods. Money removes this difficulty by acting as a medium of exchange. It allows individuals to sell goods for money and use that money to buy whatever they need.
2. How do banks act as mediators between depositors and borrowers?
Answer: Banks accept deposits from people and pay them interest. They use these deposits to provide loans to borrowers at a higher interest rate. Thus, banks act as intermediaries between those who have surplus funds and those who need funds.
3. Explain how credit can be both helpful and harmful.
Answer: Credit can help people grow their business and increase income when used productively. But if income fails to rise or losses occur, repayment becomes difficult. This can lead to a debt trap, making credit harmful.
4. Why is collateral important for taking a loan?
Answer: Collateral serves as security for lenders, ensuring they can recover the loan if the borrower fails to repay. It may include property, land, or bank deposits. Hence, it builds trust and reduces risk for the lender.
5. Differentiate between formal and informal sources of credit.
Answer: Formal sources include banks and cooperatives that charge low interest and follow rules under RBI supervision. Informal sources include moneylenders and traders who charge very high interest rates. Formal credit is safer and more reliable for borrowers.
6. What is the importance of Self-Help Groups (SHGs) for the poor?
Answer: SHGs help poor people, especially women, to save money and get small loans at low interest. They promote self-employment and financial independence. These groups also discuss and act on social issues like health and domestic violence.
7. Why should formal sources of credit be expanded in India?
Answer: Formal credit is cheaper and follows fair rules. Expanding it helps reduce people’s dependence on informal moneylenders who charge high interest. It promotes equality and supports economic development.
8. What role does the Reserve Bank of India play in supervising banks?
Answer: The RBI ensures that banks maintain minimum cash reserves and lend fairly to all sectors. It monitors interest rates, loan distribution, and other banking activities. This supervision helps maintain stability and trust in the financial system.
9. Describe the role of credit in development.
Answer: Credit enables people to invest in farming, small businesses, and industries. It promotes production, employment, and income generation. When available at reasonable rates, credit helps in the overall development of society and the economy.
10. What is the idea behind the Grameen Bank of Bangladesh?
Answer: The Grameen Bank aims to provide small loans to the poor, especially women, without requiring collateral. It encourages them to start income-generating activities and become self-reliant. This model has helped millions of poor people improve their lives.
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