Class 10 Economics Chapter 3 Question Answers - Money and Credit

Q1. Can everyone in Sonpur get credit at a cheap rate? Which people can get such credit?
Ans: No, not everyone in Sonpur can access cheap credit. Typically, the following groups are eligible:

• Medium farmers who are literate.
• Farmers with their own land for cultivation.

These individuals are more likely to receive loans at lower interest rates from banks.

Q2. Write two main functions of a commercial bank.
Ans: Two main functions of a commercial bank:

• Accepting deposits: Commercial banks take money from individuals, providing a safe place for savings.
• Providing loans: They offer loans to entrepreneurs, helping them to start or expand their businesses.

Q3. Why should credit at reasonable rates be available for all?

Ans: If credit is available at a reasonable rate, it can significantly boost income levels. This allows individuals to:

• Borrow for various needs, such as:
  • Growing crops
  • Starting small-scale industries
  • Engaging in business activities

Access to affordable credit is essential for the development of a country. Overall, reasonable credit rates can enhance economic opportunities for many.

Q4. What do you understand by “terms of credit”?
Ans: The terms of credit refer to the conditions under which a loan is provided. These include:

• Interest rate: The cost of borrowing the money.
• Collateral: An asset that the borrower offers to secure the loan.
• Documentation requirements: The necessary paperwork needed to process the loan.
• Mode of repayment: The method and schedule for paying back the loan.

These terms can vary significantly based on the lender and borrower involved.

Q5. How is credit helpful for the country’s development?
Ans: Credit plays a crucial role in a country's development by facilitating economic activities. Here are some key points on how credit is beneficial:

• It enables individuals and businesses to meet ongoing expenses related to production.
• Credit helps in completing production on time, which can lead to increased earnings.
• Access to credit supports a higher volume of transactions in daily activities.
• Overall, credit contributes positively to the economic growth of a nation.

Q6. What is the basic idea behind the SHG’s for the poor? Explain in your words.
Ans: The basic idea behind Self Help Groups (SHGs) for the poor is to provide accessible credit at lower interest rates with minimal documentation. Key features include:

• A typical SHG consists of 15-20 members from the same neighbourhood.
• Members save regularly, contributing between Rs 25 to Rs 100 or more.
• The pooled savings are used to offer loans to members for various needs.
• The group decides on loan terms, including purpose, amount, interest rates, and repayment schedules.

Overall, SHGs empower the rural poor, especially women, by promoting financial self-reliance and creating opportunities for self-employment.

Q7. Why do we need to expand formal sources of credit in India?
Ans: Expanding formal sources of credit in India is essential for several reasons:

• Lower Interest Rates: Formal credit sources offer loans at much cheaper rates compared to informal lenders.
• Increased Income: Access to affordable loans helps individuals increase their income, enabling them to repay both the principal and interest.
• Boosting Production: More credit leads to increased production activities, contributing to overall economic growth.
• Reducing Dependence: Expanding formal credit reduces reliance on expensive informal sources, which often charge high interest rates.

Q8. What is the main source of income for banks?
Ans: The main source of income for banks is the difference between the interest rates they charge borrowers and the rates they pay to depositors. Here’s how it works:

• Banks keep a portion of deposits as reserves.
• They lend the remaining funds to borrowers.
• Banks charge a higher interest rate on loans than they offer on deposits.
• The difference between these rates is the bank's primary source of income.