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Money and Credit Class 10 Worksheet Economics Chapter 3

Multiple Choice Questions
Q1: A person can withdraw money from a bank by issuing a cheque. What is a cheque?
(a) Loan taken by the bank.
(b) Loan taken by the depositor from the bank.
(c) Paper instructing the bank to pay a specific amount.
(d) Paper valid to withdraw money

Ans: (c)

Q2: Which one of the following is not a formal source of credit?
(a) Commercial Banks
(b) State Bank of India
(c) Employers
(d) Co-operatives

Ans: (c)

Q3: All the banks actas mediator between _________ and _________.
(a) rural people, urban people
(b) literates, illiterates
(c) people, government
(d) depositors, borrowers
Ans:
(d)

Q4: Organised credit is also called
(a) informal credit
(b) formal credit
(c) cooperative credit
(d) none of these

Ans: (b)

Q5: A porter making pots, wants to exchange pots for wheat. Lukily, he meets a farmer who has wheat and is willing to exchange it for the pots. What is this situation known as?
(a) Incidence of wants
(b) Double coincidence of wants
(c) Barter system of wants
(d) None of the above

Ans: (b)

Q6: Organised credit is also called
(a) informal credit
(b) formal credit
(c) cooperative credit
(d) none of these

Ans: (b)

Q7: Modern form of money is linked with which system?
(a) Accounts system
(b) Finance system
(c) Banking system
(d) None of the above.

Ans: (c)

Q8: Which one of the following does not come under terms of credit?
(a) Interest rate
(b) Employment
(c) Collateral
(d) Mode of repayment.

Ans: (b)

Q9: What are electronic banking services?
(a) ATM
(b) Debit Card
(c) Credit Card
(d) All of the above.
Ans:
(d)

Q10: A person can withdraw money by issuing a cheque. What is a cheque?
(a) Loan taken by the bank.
(b) Loan taken by the depositor from the bank.
(c) Paper instructing the bank to pay a specific amount.
(d) Paper valid to withdraw money

Ans: (c)

Fill in The Blanks
Direction: Complete the following statements with appropriate word(s).
Q1: Modern forms of money include _______ (gold coins/ paper notes)
Ans:
Paper notes 

Q2: Deposits in bank accounts withdrawn on demand are called _____ .
Ans:
Demand deposits 

Q3: _____ issues currency notes on behalf of the Central Government.
Ans: 
Reserve Bank of India

Q4: Majority of the credit needs of the _____ households are met from informal sources.
Ans:
poor 

Q5: _____ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.
Ans:
Collateral

True & False

Direction: Read each of the following statements and write if it is true or false.
Q1: In a SHG, most of the decisions regarding savings and loan activities are taken by government.
Ans:
False

Q2: The collateral demand that lenders make loans against are vehicle and building of the borrower.
Ans:
True

Assertion And Reason Type Questions
Direction Mark the option which is most suitable :‘
Q1: Assertion: In India, no individual can refuse to accept a payment made in rupees.
Reason: Rupee is the legal tender in India.
(a) If Both assertion and reason are true, and reason is the correct explanation of assertion.
(b) If Both assertion and reason are true, but reason is not the correct explanation of assertion.
(c) If Assertion is true, but reason is false.
(d) If Both assertion and reason are false.

Ans: (a)
The law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India.

Q2: Assertion: Banks keep only a small proportion of their deposits as cash with themselves.
Reason: Banks in India these days hold about 15 per cent of their deposits as cash.

(a) If Both assertion and reason are true, and reason is the correct explanation of assertion.
(b) If Both assertion and reason are true, but reason is not the correct explanation of assertion.
(c) If Assertion is true, but reason is false.
(d) If Both assertion and reason are false.

Ans: (b)
Banks keep only a small proportion of their deposits as cash with themselves because they use the major portion of the deposits to extend loans as there is a huge demand for Ioans for various economic activities.

Q3: Assertion: Rohan took credit in the form of advance payment from a buyer and he delivered the goods to the buyer on time and also earned profit. The credit made Rohan better off in this situation.
Reason: Credit can never push a person into a debt trap.

(a) If Both assertion and reason are true, and reason is the correct explanation of assertion.
(b) If Both assertion and reason are true, but reason is not the correct explanation of assertion.
(c) If Assertion is true, but reason is false.
(d) If Both assertion and reason are false.

Ans: (c)
The credit made Rohan better off in this situation, however, Rohan would have been worse off if he had failed to deliver the goods on time or he had made a loss in the production process. The latter two situations may have caused Rohan to fall in a debt trap.

Q4: Assertion: Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with banks) and uses this as a guarantee to a
Reason: Collateral is given as the lender can sell the collateral to recover the loan amount if the borrower fails to repay the loan.

(a) If Both assertion and reason are true, and reason is the correct explanation of assertion.
(b) If Both assertion and reason are true, but reason is not the correct explanation of assertion.
(c) If Assertion is true, but reason is false.
(d) If Both assertion and reason are false.

Ans: (a)
Property such as land titles, deposits with banks, livestock are some common examples of collateral used for borrowing. In case of failure of repayment of loan, the lender can sell the collateral to recover the loan amount.

Q5: Assertion: The Reserve Bank of India supervises the functioning of formal sources of loans.
Reason: The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.

(a) If Both assertion and reason are true, and reason is the correct explanation of assertion.
(b) If Both assertion and reason are true, but reason is not the correct explanation of assertion.
(c) If Assertion is true, but reason is false.
(d) If Both assertion and reason are false.

Ans: (b)
The RBI oversees the functioning of commercial banks.
The reason statement substantiates the assertion but it is not the explanation for the assertion.

Very Short Answer Type Questions
Q1: Give any two examples of informal sector of credit.
Ans: 
The two examples of informal sector of credit are moneylenders and friends.

Q2: How does the use of money make it easier to exchange things? Give an example.
Ans:
In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheatgrowing farmer who wants to buy shoes and needs to sell wheat.
Money can make it easier to exchange the things.
The shoe manufacturer can sell the shoes for money and then with that money he can bed to buy wheat.

Q3: How do the deposits with the banks become their source of income?
Ans: 
With the deposits in the bank, the bank use it to extend loan to the borrowers with the high rate of interest. Bank pays less rate of interest to the depositors. The difference is the source of income of the banks.

Q4: Compare formal sector loans with informal sector loans regarding interest only.
Ans:
The rate of interest charged by the formal sector is low whereas it is high in case of the informal sector.

Q5: What do people do with extra money?
Ans: 
They deposit it with the banks by opening a bank account in their name.

Q6: Why do we consider demand deposits as money?
Ans:
Demand deposit constitute money in modern economy as they are accepted widely as a means of payment along with currency. 

Q7: What does higher cost of borrowing means?
Ans: 
This means a large part of the earnings of the borrowers is used to repay the loan. Hence, borrowers have less income left for themselves.

Q8: When is crucial for the country’s development?
Ans: 
Cheap and affordable credit is crucial for the country is development.

Q9: How do the SHGs help borrowers?
Ans: 
The SHGs help borrowers overcome the problem of lack of collateral. 

Q10: Prove with an argument that there is a great need to expand formal sources of credit in rural India.
Ans: 
There is a great need to expand formal sources of credit in rural India so that the people can be protected from the clutch ‘ of the moneylenders and improve their economic condition.

Short Answer Type Questions 
Q1: Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
or
“Cheap and affordable credit is crucial for the country’s development.” Assess the statement.
Ans: 
Due to the following three reasons, cheap and affordable credit is important for the country’s development:
a. It will help people to take credit for variety of reasons.
b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest.
c. It will be easy for the people to repay the loan.

Q2: Explain any three loan activities of banks in India.
Ans:
The three loan activities of the banks are:
a. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.
b. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.
c. Rest of the amount is used to extend loan to the borrowers.

Q3: Why do banks ask for collateral while giving credit to a borrower?
Ans: 
Collateral is an asset that the borrower owns such as land, building, vehicle, livestock, land documents, deposits with banks etc. This stands as a security against the money borrowed from the bank. In case the borrower fails to repay the loan to the bank, the lender has the right to sell the asset or collateral.

Q4: What comprises ‘terms of credit’?
Ans:
Rate of interest, collateral security, documentation requirements and mode of repayment together comprise terms of credit. This varies from bank to bank and borrower to borrower.

Q5: “Supervision of the functioning of formal sources of loans is necessary”.
Ans:
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.

Q6: “There is a great need to expand formal sources of credit in rural India.” Examine the statement.
Ans: 
There is great need to expand formal sources of credit in rural India because: In the informal sector there is no organisation to supervises the credit activities of lenders. They lend at whatever interest rate they choose. No one can stop rural money-lenders from using unfair means to get their money back.

Q7: Describe the utility of Cheque.
Ans:
A Cheque is a paper that instructs the bank to pay a specific amount from the account holder’s account to the person in whose name the Cheque has been issued.
Demand deposits are accepted as a means of payment because the depositors get the facility of Cheque against it, which is used to settle the transaction without the use of money.

Q8: “The credit activities of the informal sector should be discouraged.” Support the statement with arguments.
Ans:
It is true to say that the credit activities of the informal sector should be discouraged. It is due to the following reasons:
a. They charge high rate of interest in comparison to that of formal sector.
b. Thus the cost of borrowing is high.
c. Due to high cost of borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development and ultimately will affect the country’s economic development.

Q9: ‘Credit has its own unique role for development.’ Justify the statement with arguments.
Ans:
Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example, Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan. Sometimes, credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example, a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Q10: “Poor households still depend on informal source of credit.” Support the statement with examples.
or
“Most of the poor household still depend on the informal sector for loans, both in rural and urban areas of India.” Support the statement with three examples.
Ans: 
Yes, it is true that the poor households still depend on informal source of credit. It is due to the following reasons:
a. Banks are not present everywhere.
b. Collateral is required by the formal sector loan providers.
c. Many a time, the moneylenders know the borrowers personally and willing to pay the loan without any collateral.

Long Answer Type Questions
Q1: What are self-help groups? How are they emerging as an import ant source of credit? Explain.
or
‘Self-Help Groups’ help borrowers to overcome the problems of lack of collateral.” Examine the statement.
Ans: 
This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. Saving per member varies from ? 25 to ? 100 or more, depending on the economic condition of the member. When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest. Loan matter is taken very seriously as, if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

Q2: How do SHG’s act to provide a platform for women to address their various social issues?
Ans:
SHGs act to provide a platform for women to address their various social issues in the following ways:
(1) A Self-Help Group is an organization of rural poor, particularly women who pool their savings.
(2) The SHG encourages its members for savings and enables them to take small loans from the group itself to meet their needs. In this way, it addresses their economic issue that is the base of many social issues.
(3) SHGs are the building blocks of the organization of the rural poor. Not only does it help women to become financially self-reliant, but the regular meetings of the group also provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence, etc.
(4) The SHG provides self-employment opportunities to its members by providing them loans for meeting working capital needs, for housing materials, for acquiring assets like a sewing machine, handlooms, cattle, etc.
(5) The group charges interest on these loans but this is still less than what the money-lenders charge.

Q3: “Banks are playing an important role in the development of the Indian economy.” Support the statement with examples.
Ans: 
Cheap and affordable credit is important for the country’s development because:
a. It will help people to take credit for variety of reasons.
b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest.
c. It will be easy for the people to repay the loan.
Those having extra cash open a bank account in their name and deposit the surplus money there.
Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.
This helps people to run and expand their business which will increase the individual income and finally the country’s income. Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Q4: How can the formal sector loans be made beneficial for the poor farmers and workers? Suggest any five measures.
Ans:
The formal sector loans can be made beneficial for the poor farmers and the workers by taking the following measures:
a. There should be availability of more and more banks in the rural areas.
b. Providing the loan to the poor at much cheaper rates.
c. There should be easy access to loan.
d. Depending on situation, farmers should be given credit without collateral.
e. There should be provision of instant loan to the farmers and the poor.

Q5: What are Self-Help Groups? How do they work? Explain.
Ans: This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. Saving per member varies from ? 25 to ? 100 or more, depending on the economic condition of the member. When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest. Loan matter is taken very seriously, as if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral. Loan is provided to help them to create selfemployment opportunities. All the group members together take decision regarding saving and loan activities. SHG helps women in making them financially self-reliant and provides platform to discuss and act on a variety of social issues.

Q6: What is credit? How does credit play a vital and positive role? Explain with an example.
Ans: 
Credit is an agreement between the lender and the borrower in which the borrower promises to pay the lender in the future. Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Q7: Why are banks necessary for a country?
Ans: Banks provide 'Yeoman Services" to the country. The modernisation of any economy has been possible with the development of banking system of that country. Following are the reasons which justify the necessity of banks for a country:
(i) Banks mobilise the dormant savings of the country. The surplus money which the people have and don't need in the near future is accepted by the banks as deposits.
(ii) These deposits of the public provide safety to their funds and income in the form of interest.
(iii) People can withdraw this money whenever they are in need. So, these deposits provide liquidity to the depositors.
(iv) Banks provide loans to the needy borrowers.
(v) Banks provide loans to the people out of the money deposited by the depositors. In this way the banks acts the role of financial intermediary.
(vi) Most of the credit issued by the banks is used for productive purposes which increase the production and employment opportunities in the economy.
(vii) Banks provide credit facilities not only to general people, but they also participate in providing government loans as well. So, in this way, banks help the government in the development of infrastructural facilities.

Q8: In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? 
OR
How does Reserve Bank of India play a crucial role in controlling the formal sector loans. Explain.
Ans: 
Reserve Bank of India (RBI) supervises the functioning of the banks in the following manner:
(i) First of all, RBI determines the necessary reserve ratios for banks such as Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to be maintained by them. The reserves are maintained by the banks to deal with the liquidity crunch in case if it arises. These reserves are calculated on the basis of the deposits held with the banks.
(ii) The banks have to periodically submit report to the RBI regarding the credit portfolio. They have to ensure that they do not breach any of the instructions given by RBI on the management of credit portfolio. This helps the RBI to contain any risk situations that may emerge due the lending practices of thebanks.
(iii) RBI also ensures that the banks are not being partial in providing loans. It means that RBI ensures that the banks are lending not only to the big businessmen or companies, but also taking care of the weaker sections of the society like small farmers and agricultural labourers in rural areas and small businessmen, labourers, small artisans etc. in urban areas. Lending to such weaker sections may be included in priority sector lending of the banks.
(iv) The RBI may supervise the expansion pattern of the banks in order to ensure that the banks are not only opening their branches in urban areas, but also expanding their facilities in rural and remote areas like hilly areas of the country.

Q9: When does credit push the borrower into a debt-trap? Explain with the help of an example.
Ans:
Sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times, caught into the situation of debt-trap. For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Q10: What are the merits and demerits of credit ?
OR
‘‘Credit is useful as well as harmful, it depends on the risk involved.’’ Support the statement with examples.
Ans: 
Credit is a facility in which a lender extends a loan to a borrower to fulfill his needs with a promise from the borrower to return the borrowed money to the lender with predetermined interest. Such credit may be in terms of money as well as goods and services. The credit facility has following merits and demerits :
Merits :
(i) It provides much needed purchasing power to the borrower which he lacks.
(ii) It helps the borrower to mobilise the productive resources.
(iii) It helps to increase the production of the borrower and the country.
(iv) It helps to raise the income and standard of living of the borrower.
(v) It helps the lender to earn income in the form of interest.
(vi) It helps to utilise surplus money of lender which is not in immediate use.

Demerits :
(i) It puts a burden of payment of excess amount on the borrower. The excess amount refers to the sum of principal and interest.
(ii) It puts the borrower in stress of losing an asset or reputation if he fails to return the borrowed money on time.
(iii) If the borrower looses the loan amount and is not supported by the financial or asset backup, he may fall into the debt trap.
(iv) If the terms of credit are unfavourable, the borrower may face difficulties in carrying on with the credit.
Credit is helpful in a situation where there is not much risk. For Example: Mohan take a loan to complete an order for shoe delivery. Since the order is already placed, taking the loan does not involve much risk. Hence, Mohan is able to take benefit from the loan. But Neelima takes the loan for crop cultivation. This is risky as the crop may fail due to pests. This indeed happens and Neelima cannot repay the loan. She takes another loan next year and get caught in a debt trap.

The document Money and Credit Class 10 Worksheet Economics Chapter 3 is a part of the Class 10 Course Social Studies (SST) Class 10.
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