Q1: Why are transactions made in money? Explain. [Term-II,2021-22 C]
Ans: Transactions are made in money because money serves as a universally accepted medium of exchange. It is a convenient and widely recognized way to facilitate the exchange of goods and services. Money eliminates the need for a direct barter system where individuals would have to exchange goods or services directly with each other, which can be inefficient and time-consuming. With money, individuals can easily exchange it for any commodity or service they desire, making transactions more efficient and convenient.
Q2: How does a bank work as a key component of the financial system? Explain. [Term-II, 2021-22]
Ans: Banks play a vital role in the financial system as they act as intermediaries between depositors and borrowers. They collect deposits from individuals and businesses who have surplus funds and provide loans to those who are in need of funds. This process of mobilizing funds from depositors and lending them to borrowers helps in the efficient allocation of resources in the economy.
Q3: Analyse the situation in which credit pushes the borrower into a situation from which recovery is painful. [Term-II, 2021-22]
Ans: Credit can be a useful tool for individuals and businesses to meet their financial needs and invest in productive activities. However, in certain situations, credit can push borrowers into a situation from which recovery becomes painful.
Here are some scenarios where this can happen:
In such situations, borrowers may struggle to recover financially, as the burden of debt becomes overwhelming. It is important for individuals and businesses to borrow responsibly, assess their repayment capacity, and seek credit from reliable and regulated sources to avoid falling into a painful debt situation.
Q4: Read the following source and answer the questions that follow: [Term-II,2021-22]
A House Loan
Megha has taken a loan of Rs. 5 lakhs from the bank to purchase a house. The annual interest rate on the loan is 12 per cent and the loan is to be repaid in 10 years in monthly installments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan. The bank retained as collateral the papers of the new house, which will be returned to Megha only when she repays the entire loan with interest.
(i) From which source of credit Megha has taken loan?
Ans: Megha has taken a loan from a formal source of credit, which is the bank.
Ans: Terms of credit given in the source are Document required - Salary slip and employment record. Interest rate - 2% per annum Mode of repayment - Monthly instalment Collateral - New house papers
Q5: Krishna is working in a neighbouring field with very less wages. Expenses on sudden illnesses or functions in the family are also met through loans. The landowner charges an interest rate of 5 per cent per month. At present she owes the landowner Rs. 5,000.
Analyse the credit arrangements given above. 
Ans: Credit arrangement-informal sources of credit / No intervention of government in controlling the credit activities carried out by informal sources.
Q6: Why are demand deposits considered as money? [AI2019]
Ans: Demand deposits are considered as money because they can be easily withdrawn when required and used for making payments. Demand deposits refer to funds held in checking accounts at banks, which can be accessed and used for transactions through various means such as checks, debit cards, or online transfers. These deposits are considered as money in the modern economy because they are readily available for use as a medium of exchange.
Q7: How is 'double coincidence of wants' not appreciable in the contemporary scenario? [2019C, Delhi 2017]
Ans: In the contemporary scenario, the concept of 'double coincidence of wants' is not appreciable because it is often difficult to find a direct match between what one person wants to sell and what another person wants to buy. 'Double coincidence of wants' refers to a situation where two individuals have goods or services that the other person desires, creating a mutual exchange. However, in a complex and diverse economy, it is impractical to expect such a direct match to occur in every transaction. Money eliminates the need for this double coincidence by acting as an intermediate medium of exchange.
Q8: Why is money called a medium of exchange? [AI2019]
How does money act as medium of exchange? 
Ans: Money is called a medium of exchange because it facilitates the exchange process between buyers and sellers. Money acts as an intermediary in transactions, allowing individuals to buy goods and services by exchanging money for them. It serves as a universally accepted medium that is widely recognized and valued for its purchasing power. By using money as a medium of exchange, people can easily acquire the goods and services they desire without the need for direct bartering or finding a double coincidence of wants.
Q9: Give any two examples of informal sector of credit. 
Ans: Two examples of the informal sector of credit are moneylenders and relatives/friends who provide loans.
Q10: How is money beneficial in transactions? [Foreign 2017]
Ans: Money is beneficial in transactions because it eliminates the inconvenience of the double coincidence of wants. In a barter system, individuals would have to find someone who has what they want and is willing to accept what they have to offer in exchange. This can be inefficient and time-consuming. However, with the introduction of money, people can simply exchange their goods or services for money and then use that money to purchase whatever they desire from anyone willing to accept it. Money provides a common medium of exchange that simplifies and accelerates transactions.
Q11: Why one cannot refuse a payment made in rupees in India? 
Ans: One cannot refuse a payment made in rupees in India because the Indian rupee is the authorized and accepted medium of exchange in the country. The Government of India has established the Indian rupee as the official currency, and it is legally recognized as a valid form of payment. Therefore, individuals and businesses are required to accept payments made in rupees, and refusal to do so would be in violation of the accepted legal tender.
Q12: How does money eliminate the need for double coincidence? 
Ans: Money eliminates the need for double coincidence by providing a crucial intermediate step in transactions. In a barter system, individuals would have to find someone who not only wants what they have to offer but also has what they desire in return. This double coincidence can be challenging to achieve. However, with the introduction of money, individuals can simply sell their goods or services for money and then use that money to purchase any other desired commodity available in the market. Money acts as a universally accepted medium of exchange, allowing individuals to acquire what they need without the requirement of a direct match between their wants and the wants of others.
Q13: How do the deposits with banks become their source of income? [Delhi 2016]
Ans: When we deposit our money in the bank we get an interest on it. However the bank uses that money to give loan to people. The bank charges an interest on its loan at a higher rate than what is paid to the depositors. Thus, the banks earn money from the deposits.
Q14: Why do banks maintain cash reserve? 
Ans: Banks maintain cash reserve to ensure smooth daily withdrawal by depositors.
Q15: Prove with an argument that there is a great need to expand formal sources of credit in rural India. 
Ans: The expansion of formal sources of credit in rural India is crucial because it ensures that the rural poor have access to credit at reasonable interest rates. This helps them meet their financial needs without falling into the trap of high-interest informal loans. Additionally, formal sources of credit provide better regulation and supervision, ensuring fair lending practices.
Q16: Why is the supervision of the functioning of formal sources of loans necessary? 
Ans: The supervision of formal sources of loans is necessary to ensure that these institutions provide loans not only to the rich but also to the poor. It helps in preventing exploitation and ensures that the banks follow the proper procedures and regulations set by the Reserve Bank of India (RBI).
Q17: Why do farmers require credit? 
Ans: Farmers require credit to finance their agricultural activities. This credit is used to purchase agricultural inputs such as seeds, fertilizers, pesticides, and machinery. It helps farmers to manage their expenses and invest in their farming operations for better productivity.
Q1: Explain any three functions of the Reserve Bank of India. [2023, Al 2019]
Ans: The Reserve Bank of India has many important roles that affect the common public:
Q2: Explain the role of banks with regard to money which they accept from the public. 
Ans: Banks play an important role regarding the money they accept from the public
Q3: 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 a loan. Create a list of argument explaining who between the two would successfully be able to arrange money from a formal source. Why? [Term-II,2021-22 C, 2016]
Ans: Dhananjay will be able to get a loan from a formal source.
Q4: "The use of money spans a very large part of our everyday life". Support the statement. [2021 C]
Ans: In everyday lives, we use money to fulfill our requirement in different ways:
Q5: Self-Help Groups are the building blocks of organisation of the rural poor. Suggest any three ways to make them popular for social issues. [2020 C]
Ans: Ways to make SHGs popular for social issues:
Q6: "The Reserve Bank of India supervises the functioning of formal sources of loans." Support the statement with examples. 
Ans: The Reserve Bank of India (RBI) supervises the functioning of formal sources of loans in the following ways:
Q7: Why do lenders ask for collateral while lending? Explain. [2020, Foreign 2014]
Ans: Lenders ask for collateral while lending because:
Q8: How do demand deposits have the essential features of money? Explain. 
Ans: Demand deposits are considered as money because:
Q9: Describe the bad effects of informal sources of credit on borrowers. [Delhi 2019]
Ans: The informal sector consists of money lenders, traders, employers, friends, relatives, merchants, and landlords. There is no organization that supervises the credit activities of lenders in the informal sector.
Q10: Explain the three important terms of credit. [Al 2019]
Ans: The three important terms of credit are:
Q11: Explain any three situations in which credit helps in the development of agriculturists. [2019C]
Ans: Three situations in which credit helps in the development of agriculturists:
Q12: Describe the importance of formal sources of credit in economic development. [Delhi 2019]
Ans: The formal source of credit comprises of banks and cooperative societies. The Reserve Bank of India supervises the functioning of formal sources of loans.
The importance of formal sources of credit in economic development are:
Q13: Explain any three loan activities of banks in India. [Al 2017]
Q14: "Banks are an efficient medium of exchange." Support the statement with arguments. [Delhi 2017]
Q15: Illustrate with examples the role of 'loan' in 'business'. [Foreign 2017]
Ans: Loan or credit plays a crucial role in business. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for functioning, developing, and expanding business. This leads to an increase in production, profits, and employment.
For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by money lenders and can ultimately contribute to national development.
Q16: How can money be used to easily exchange it for goods or services? Give examples to explain. [Delhi 2016]
Ans: Money acts as a medium of exchange itself for goods and services. A person holding money can easily exchange it for any commodity or service that he or she might want. Everyone prefers to receive payments in money and exchange the money for things they want.
For example, a shoemaker wants to sell shoes in 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 a wheat-growing farmer who not only wants to sell wheat but also wants to buy the shoe in exchange. Both the parties have to agree to sell and buy each other's commodities. This process is very difficult, time-consuming, and unhealthy.
Q17: How is money transferred from one bank account to another bank account? Explain with an example. [Foreign 2016]
Ans: If a person has to make a payment to his or her friend and writes a cheque for a specific amount, this means that the person instructs his bank to pay this amount to his friend. His friend takes this cheque and deposits it in his account in the bank. This said amount is transferred from one bank account to another bank account.
Q18: Mention three points of difference between formal sector and informal sector loans. 
Ans: Formal sector loans:
Informal sector loans:
Q19: How is the concept of Self Help Groups important for poor people? Give your viewpoint. [Foreign 2016]
Ans: Self Help Groups are known as SHGs:
Q20: Poor households still depend on informal sources of credit". Support the statement with examples. 
Q21: "The credit activities of the informal sector should be discouraged." Support the statement with arguments. 
Q1: "Cheap and affordable credit is crucial for the country’s development’.” Justify the statement. 
Ans: Cheap and affordable credit is crucial for a country's development due to the following factors:
Q2: Justify the role of 'Self Help Groups’ in the rural economy. 
Ans: Self Help Groups (SHGs) play a significant role in the rural economy due to the following reasons:
Q3: How are formal sources of credit different from informal sources? Explain with an example. [Term-ll, 2021-22]
Ans: Formal sources of credit, such as banks and cooperatives, differ from informal sources in the following ways:
Q4: Explain with an example the role of credit for development. [Term-ll, 2021-22]
Ans: Credit plays a vital role in development by providing funds for various purposes. For example, consider Salim, a small-scale entrepreneur. He takes a loan to buy raw materials and equipment for his business. With the credit, he can meet ongoing expenses, complete production on time, and increase his earnings. This shows how credit enables individuals to invest, earn income, and contribute to economic development.
Q5: "Bank plays an important role in the economic development of the country”. Support the statement with an example. 
Ans: Banks play a significant role in the economic development of a country. For example, banks help in capital formation by mobilizing small savings and making them available for productive purposes. They extend loans to different industries, supporting their development. Additionally, banks facilitate credit creation, which leads to increased production, employment, and overall economic growth. The role of banks in providing financial services and promoting investment contributes to the development of the country.
Q6: “Credit sometimes pushes the borrower into a situation from which recovery is very painful”. Support the statement with examples. 
Ans: Credit can sometimes lead borrowers into a difficult situation. For example, consider a farmer who takes a loan from a moneylender to meet cultivation expenses. Unfortunately, the crops fail due to pests, and the farmer is unable to repay the loan. The debt grows with interest, and the next year, the farmer takes another loan. While he has a normal crop that year, his earnings are not enough to pay the earlier loan. To repay the loan, he is forced to sell a part of his land. This example illustrates how credit can push borrowers into a situation where recovery becomes painful, trapping them in a cycle of debt.
Q7: "Self Help Groups help borrowers to overcome the problem of lack of collateral." Examine the statement. [2020, Delhi 2017]
Ans: The statement is true as Self Help Groups (SHGs) offer loans to members without the requirement of collateral. SHGs operate on the basis of trust and collective responsibility. They pool the savings of members and use it to extend loans to individuals within the group. Since the loans are given within the group, there is no need for traditional collateral. Instead, the group ensures repayment through regular meetings, monitoring, and collective responsibility. This feature of SHGs makes credit accessible to individuals who do not possess collateral, enabling them to overcome the problem and access financial support for various purposes.
Q8: Describe the vital and positive role of credit with examples. [2019, Delhi 2016]
Ans: Credit plays a vital and positive role in various aspects. It enables individuals from different backgrounds to set up businesses, increase their income, and support their families. For example, someone may take a loan to start a small business, which creates employment opportunities and contributes to economic growth. Credit also helps individuals improve their living standards, such as using a loan to build a house and escape monthly rent expenses. Furthermore, credit allows people to invest in education or vocational training, opening up better career prospects and improving their overall well-being.
Q9: Review any three merits and any two demerits of 'Formal sector of credit' in India. [Foreign 2017]
Ans: Merits of the formal sector of credit in India:
Demerits of the formal sector of credit in India:
Q10: What are demand deposits? Explain any three features of it. 
Ans: Demand deposits refer to the deposits made by individuals in banks that can be withdrawn on demand.
Three features of demand deposits are:
Q11: How can formal sector loans be made beneficial for poor farmers and workers? Suggest any five measures. [AI 2016]
Ans: Formal sector loans can be made beneficial for poor farmers and workers through the following measures:
|1. What is the importance of money in our daily lives?|
|2. What is the difference between credit and money?|
|3. How does the banking system create money?|
|4. What are the advantages and disadvantages of using credit?|
|5. How does the availability of credit affect the economy?|