Q 1. What do banks do with the deposits they accept from customers?
Banks use a major portion of deposits to extend loans to people.
Q 2. How does money act as an intermediate in the exchange process?
Money eliminates the need for double coincidence of wants e.g., once the shoe manufacturer exchanges his shoes for money, he can purchase wheat or any other commodity in the market.
Q 3. What is the reason for accepting paper notes as a medium of exchange?
Paper notes are accepted as a medium of exchange because the currency is authorized by the government of the country.
Q 4. The currency notes on behalf of the Central Government are issued by whom?
Reserve Bank of India
Q 5. Why do banks ask for collateral while giving credit to a borrower?
Collateral is an asset that the borrower owns (land, building, vehicle, livestock, land documents, deposits with banks, etc.) which stands as a security against the money borrowed. In case the borrower fails to repay the loan, the lender has the right to sell the asset or collateral.
Q 6. What comprises ‘terms of credit’?
Interest rate, collateral and documentation requirement and mode of repayment together comprise terms of credit.
Q 7. Why is the supervision of the functioning of formal sources of loans necessary?
Supervision of the functioning of formal sources of loans is necessary because banks have to submit information to the RBI on how much they are lending, to whom they are lending and at what interest rate etc.
Q 8. Why are most of the poor households deprived from the formal sector of loans?
Most of the poor households are deprived from the formal sector loans because of lack of proper documents and absence of collateral.
Q 9. What is the main informal source of credit for rural households in India?
Money lenders are the main source of informal credit for rural households.
Q 10. Which body supervises the functioning of formal sources of loans?
Reserve Bank of India.
Q 11. What does currency include?
Currency includes paper notes and coins.
Q 12. What is meant by double coincidence of wants?
Double coincidence of wants means when both parties have agreed to sell and buy each other’s commodities.
Q 13. How is the facility of demand deposits useful for the depositor?
People’s money is safe with the banks and it earns an amount of interest.
Q 14. How do the deposits with banks become their source of income?
Banks charge a higher interest rate on loans they extend than what they offer on deposits. The difference of interest is the main source of income of banks.
Q 15. Why one cannot refuse a payment made in rupees in India?
One cannot refuse a payment made in rupees in India because it is accepted as a medium of exchange. The currency is authorized by the government of the country.
Q 16. How does the use of money make it easier to exchange things? Give an example.
The use of money solves the problem of double coincidence of wants. Money acts as a medium of exchange and serves as a unit of value.
Q 17. Highlight the inherent problem in double coincidence of wants.
Double coincidence of wants means that when someone wants to exchange his goods with another person, the latter must also be willing to exchange his goods with the first person. It can only work when both the persons are ready to exchange each other’s goods.
Q 18. What is the main function of the Reserve Bank of India?
The Reserve Bank of India issues currency notes on behalf of the central government and supervises the functioning of formal sources of loans.
Q 19. Define bank.
A bank is a profit-making institution that accepts the deposits, pays an amount as interest on the deposits and extends loans to the needy.
Q 20. Mention the modern form of money.
Modern forms of money include currency—paper notes and coins.
Q 21. Why do banks maintain cash reserve?
Banks maintain cash reserves as a provision to pay the depositors who might come to withdraw money from the bank on any given day.
Q 22. Why do banks keep a small proportion of the deposits as cash with themselves?
In order to pay the depositors who might come to withdraw money.
Q 23. For which purpose do the banks use the major portion of the deposits?
To extend loans.
Q 24. What percentage of bank deposits is kept as a cash reserve by the banks for the daily transaction in India?
About 15%. Known as (SLR) Statutory liquidity Ratio.
Q 25. What does loan agreement specify?
An interest rate, mode of repayment, collateral and necessary documentation.
Q 26. Why do farmers require credit?
Farmers require credit to purchase seeds, fertilizers, pesticides and for irrigation purposes.
Q 27. What is agricultural credit?
Agricultural credit refers to an agreement in which the lender supplies the farmer With money, goods or services in return for the promise of future payment.
Q 28. What do you mean by debt-trap?
A debt-trap is a situation when credit pushes the borrower into a situation from which recovery is very painful.The Borrower has to sell the asset in order to repay the Loan .
Q 29. Prove with an argument that there is a great need to expand formal sources of credit In rural India.
In order to save the poor from the moneylender’s high rate of interest and debt-trap and unfair means to get their money back.
Q 30. Mention any two main sources of credit operating in Indian villages.
Moneylenders and traders are the main sources of credit operating in Indian villages.
Q 31. Which is the new way of providing loans to the rural poor, particularly women?
Self Help Groups.
Q 32. Why are banks and co-operative Societies more popular lending agencies?
They provide loans at a cheap rate of interest.
Q 33. What is credit loan? definition of credit (loan) ?
Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
Q 34. What is the main source income for Banks ?
Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Q 35. Define Collateral ?
Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock’s, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Q 36. What is credit loan? definition of credit (loan) ?
Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
Q 37. What is the main source income for Banks ?
Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Q 38. Define Collateral ?
Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock’s, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid.
Q 39. What are the terms of credit ?
collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.
Q 40. What is the role of RBI in the supervising the function of formal Sector ?
The Reserve Bank of India supervises the functioning of formal sources of loans.The RBI monitors the banks in actually maintaining cash balance.
Q 41. What one the various types of loan sources ?
the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc.
Q 42. What are the terms of credit ?
collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit.
Q 43. What is the role of RBI in the supervising the function of formal Sector ?
The Reserve Bank of India supervises the functioning of formal sources of loans.The RBI monitors the banks in actually maintaining cash balance.
Q 44. What one the various types of loan sources ?
the former are loans from banks and cooperatives. The informal lenders include moneylenders, traders, employers, relatives and friends, etc.
Q 45. Define money.
(1) Money refers to a medium of exchange used in economic transactions or in exchange of goods and services.
(2) Transactions are made in money because it eliminates the inconvenience of the barter system of exchange. In an economy, where money is in use, money by providing the crucial intermediate step, eliminates the need for double coincidence of wants.
(3) The use of money spans a very large part of our everyday life. There are several transactions involving money in any single day.
Q 46. How is money used in everyday life? Explain with examples.
(1) The use of money spans a very large part of our everyday life. There are several transactions involving money in any single day.
(2) In many of these transactions, goods are bought and sold with the use of money. In some other transactions, services are exchanged with money. For some, there might not be any actual transfer of money taking place now but, a promise to pay money later.
(3) For example, we purchase books, pencils, chocolates from money. We give doctor’s fee and school fee in money. My father receives a monthly salary in money. Hence,money is used in everyday life.
Q 47. Differentiate between the terms of credit offered in formal and informal sectors of credit. Why are informal sources of credit more convenient and people-friendly?
Explain.
(1) Difference between the terms of credit in formal and informal sectors :
| Formal Sector | Informal Sector |
| (i)RBI supervises their function of giving loans. | (i)No organization is there to supervise its lending activities. |
| (ii) Collateral is required to obtain credit. | (ii) This sector gives loans without collateral. |
| (iii) The rate of interest is comparatively lower than that of the informal sector loans | (iii) Higher interest rates on loan are charged. |
(2) Informal sources of credit are more convenient and people friendly because they require no collateral. The borrowers can approach the money lenders even without repaying their earlier loans.
Q 48. Compare the terms of credit for small blandness agricultural workers and medium farmers in a village.
| Small landless agricultural workers | Medium farmers |
| (1)The interest rate is up to 60% per annum. | (1) The interest rate is 8.5% per annum. |
| (2) There is no need of any collateral and documentation. |
(2) There is a need for collateral and documentation for the bank loan. |
| (3) He/she repays the money by working for the landowner. | (3) Loans can be repaid anytime in the next three years. |
Q 49. Mention any six items that can be kept as a collateral against loans.
The following items can be kept as collateral against loans :
(1) Land titles
(2) Building
(3) Vehicle
(4) Livestock’s
(5) Deposits with banks
(6) Share, debenture and L.I.C. Policy.
Q 50. Why do lenders ask for collateral while lending ? Give any three reasons.
(1) Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid. Lenders ask for collateral as security against loans.
(2) If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.
(3) The bank is a profit-making institution. So, in the case of taking collateral, the epayment of the loan becomes easy. The bank has no danger of non-performing assets (NPA).