Class 10 Economics Chapter 3 Question Answers - Money and Credit

Q.1. Can everyone in Sonpur get credit at a cheap rate? Which people can get such credit? 
Ans. No, not everyone in Sonpur can get credit at cheap rates. Generally some medium farmers, who are literate and have their own land for cultivation, get credit at cheap rates from banks.

Q.2. Write two main functions of a commercial bank.

Ans. Accepting deposits from individuals and providing loans to entrepreneurs are the two main functions of a commercial bank.

Q.3. Why should credit at reasonable rates be available for all?

Ans. If credit is available at a reasonable rate, this would lead to higher income and many people could then borrow for a variety of needs such as for growing crops, for setting small scale industries, for business, etc. Thus credit at a reasonable rate will be helpful in the development process of a country.

Q.4. What do you understand by “terms of credit”?

Ans. Interest rate, collateral and documentation requirement, and the mode of repayment together are called the terms of credit.

Q.5. How is credit helpful for the country’s development?

Ans. Large numbers of transactions in our day to day activities involve credit in some form or the other. Credit helps people to meet the ongoing expenses of production, complete production on time and thereby increase their earnings. Hence, it plays a vital and positive role in a country’s development.

Q.6. What is the basic idea behind the SHG’s for the poor? Explain in your words.

Ans. The basic idea behind the SHG’s for the poor is to provide credit facilities at a cheaper rate and also without much documentation process.
An SHG has 15-20 members, usually from the neighbourhood, who meet and save regularly in the range of Rs 25 to Rs 100 or more. The amount which is collected by an SHG is utilised to give loan to a member of the group. Now the group decides as regards the loans to be granted, the purpose, amount, interest to be charged, and its repayment schedule.

Q.7. Why do we need to expand formal sources of credit in India?

Ans. Formal sources of credit in India provide loans to individuals at far cheaper rates than informal sources of credit. This helps to increase their income and they are able to repay the principal amount as well as interest by parting with a small part of their higher income. It will lead to more production. This helps in the economic development of a country.

Q.8. What is the main source of income for banks?

Ans. The main source of income for banks is the difference between interest rate charged from borrowers and what is paid to depositors. After keeping a portion of deposits as reserves banks lend to people who demand money as loan and bank charges interest from them.