Unit Test (Solutions): Money and Credit | Social Studies (SST) Class 10 PDF Download

Time: 1 hour 
M.M.: 30
Instructions: Attempt all questions.
 Question numbers 1 to 5 carry 1 mark each.
 Question numbers 6 to 8 carry 2 marks each.
 Question numbers 9 to 11 carry 3 marks each.
 Question numbers 12 & 13 carry 5 marks each.

Q1. Which of the following is a function of money? (1 Mark)

a) Source of entertainment
b) Medium of exchange
c) Symbol of culture
d) Unit of inheritance

Ans: b) Medium of exchange

The primary function of money is to act as a medium of exchange, facilitating transactions by eliminating the need for barter, which requires a double coincidence of wants.

Q2. Who issues currency notes on behalf of the central government in India? (1 Mark)

a) State Bank of India
b) Finance Ministry
c) Reserve Bank of India
d) Planning Commission

Ans: c) Reserve Bank of India

The Reserve Bank of India is the sole authority responsible for issuing currency notes on behalf of the central government, ensuring the stability and integrity of the currency system.

Q3. What is the major drawback of the barter system? (1 Mark)

a) Lack of variety
b) Double coincidence of wants
c) Low production
d) Lack of labor

Ans: b) Double coincidence of wants

The major drawback of the barter system is the requirement for a double coincidence of wants, meaning both parties must have what the other desires, which complicates trade.

Q4. Define credit in simple terms. (1 Mark)
Ans: Credit is an agreement where a lender provides a borrower with money, goods, or services, expecting repayment in the future. Here’s a simplified breakdown of how credit works:

A promise to pay back borrowed money or goods.

Examples: A shoe manufacturer borrows materials and cash to fulfil an order. Repayment occurs after the order is completed and profits are made.

• Sources: Credit can come from formal (banks) or informal (moneylenders) sources.
• Importance: Access to credit is vital for economic activities and development.

Q5. Name any one modern form of money. (1 Mark)
Ans: Modern forms of money include:

• Currency: This consists of paper notes and coins.
• Digital money: Includes bank deposits and electronic transactions.

Unlike earlier forms of money, modern currency: Is not made from precious metals like gold or silver. Has no intrinsic value but is accepted due to government backing. In India, the Rupee is the official currency, and it must be accepted for transactions.

Q6. How does a cheque function as a medium of exchange? (2 Marks)
Ans: A cheque functions as a medium of exchange by facilitating payments without the need for cash. Here’s how it works:

• The payer writes a cheque for a specific amount from their bank account.
• The cheque instructs the bank to transfer that amount to the payee's account.
• The payee deposits the cheque into their own bank account.
• The bank processes the cheque, transferring funds electronically between accounts.

Q7. Give any two features of demand deposits. (2 Marks)
Ans: Demand deposits have two main features:

• Instant Access: Funds can be withdrawn at any time without prior notice.
• Cheque Facility: They allow payments through cheques, making transactions easier.

Q8. Mention any one positive and one negative effect of credit, using examples. (2 Marks)
Ans: Positive Effect of Credit:

• Credit can boost economic activities. For example, a shoe manufacturer like Salim can take a loan to purchase materials and hire workers, allowing him to fulfil large orders and generate profit.

Negative Effect of Credit:

• In risky situations, credit can lead to debt traps. For instance, if a farmer like Swapna faces crop failure, she may struggle to repay her loan, resulting in financial distress and the potential loss of assets.

Q9. Explain any three terms that make up the Terms of Credit. (3 Marks)
Ans: Terms of Credit refer to the conditions under which credit is extended to borrowers. Here are three key terms that make up the terms of credit:

• Interest Rate: This is the cost of borrowing money, expressed as a percentage of the loan amount. A lower interest rate makes borrowing more affordable.
• Collateral: This is an asset that the borrower offers to secure the loan. If the borrower fails to repay, the lender can claim the collateral to recover losses.
• Documentation Requirements: These are the necessary papers and information that borrowers must provide to obtain a loan. This often includes proof of income and identification.

These terms can vary significantly based on the lender and the borrower's situation.

Q10. What is the difference between formal and informal sources of credit? Give any three points. (3 Marks)
Ans: Formal and informal sources of credit differ in several key ways:

• Interest Rates: Formal sources, such as banks, typically offer loans at lower interest rates compared to informal lenders, who often charge much higher rates.
• Regulation: Formal credit is regulated by authorities like the Reserve Bank of India, ensuring fair practices, while informal sources operate without oversight.
• Accessibility: Formal loans often require documentation and collateral, making them less accessible to poorer households, who rely more on informal credit.

Q11. Describe the role of the Reserve Bank of India in supervising banks. (3 Marks)
Ans: The Reserve Bank of India (RBI) plays a crucial role in supervising banks to ensure a stable and secure banking system. Its responsibilities include:

• Monitoring cash reserves: Banks must maintain a minimum cash balance from their deposits, and the RBI ensures compliance with this requirement.
• Regulating loans: The RBI mandates that banks provide loans not only to profitable businesses but also to small borrowers, including small cultivators and small-scale industries.
• Collecting data: Banks are required to periodically report to the RBI on their lending activities, including the amounts lent, the recipients, and the interest rates charged.
• Ensuring fair practices: The RBI oversees banking operations to prevent exploitation by informal lenders, who can charge arbitrary interest rates.

This supervision is essential to maintain public confidence in the banking system and to promote financial stability.

Q12. What are Self Help Groups (SHGs)? Explain any four ways in which they benefit the rural poor. (5 Marks)
Ans: Self Help Groups (SHGs) are small groups, typically consisting of 15-20 members, primarily women from rural areas. They come together to save money and provide loans to each other. The main aim is to empower the rural poor by pooling their savings and facilitating access to credit. Here are four key benefits of SHGs for the rural poor:

• Access to Credit: Members can obtain small loans from the group at lower interest rates compared to traditional moneylenders.
• Financial Independence: SHGs help women become financially self-reliant, allowing them to manage their own resources.
• Social Empowerment: Regular meetings provide a platform to discuss important social issues such as health and nutrition, fostering community support.
• Eligibility for Bank Loans: Consistent savings make SHGs eligible for larger loans from banks, enhancing their economic opportunities.

Q13. Explain the need for increasing formal sector credit in India. How can this help in reducing dependence on informal loans? (5 Marks)
Ans: Increasing formal sector credit in India is essential for several reasons:

• High Interest Rates: Most loans from informal lenders come with very high interest rates, making it difficult for borrowers to improve their income.
• Rural Lending: Banks and cooperatives need to enhance their lending, especially in rural areas, to reduce reliance on informal loans.
• Equitable Access: Currently, formal credit is mainly accessed by wealthier households. Expanding access to formal loans for poorer households can provide them with cheaper borrowing options.
• Economic Growth: More formal credit can lead to higher incomes, enabling people to invest in agriculture, businesses, and small-scale industries.
• Debt Trap Prevention: Reducing dependence on informal loans can help prevent borrowers from falling into a debt trap due to exorbitant interest rates.