Money and Credit Notes With PYQs
Money and Credit Notes With PYQs
Money and Credit Notes With PYQs
→
Money acts as medium of exchange ,
stones different values
→
Generally these are seen as
paper money and coin .
→
Take the case of a shoe manufacturer .
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This type of system is also known as BARTER
SYSTEM .
•
Barter is medium in which goods ( services are
exchanged
directly without a common unit .
*
Why transactions were made in
money ?
•
Money works as an intermediate .
and services .
* Ancient Period :
→
Grains ,
cattle were used as money .
* Medieval Period :
→
Metallic coins of gold ,
silver , copper ,
dead were used
as
money .
* Modern Period :
→
Paper money ,
coins are used .
*
Modern forms of Money
Banks
Paper Notes Coins
*
Why Money is accepted as medium of
exchange ?
It is authorised by of country
government
•
.
•
In India Reserve Bank of India issues currency
,
it Cheque :
*
Deposition of Money in Banks :
•
People deposits money in banks and bank provide
interest in the deposited amount .
* Demand Deposit
•
•
Demand deposit accepted widely as a means of payment
along currency .
•
Constitute money in modern
economy .
*
Cheque :
*
Working of Banks :
Bank earns
from
the difference in interests Major cash
part of
of deposits and loans is used to loan
give
to
people
* Credit ( LOAN) :
→ Positive :
Done loan
successfully able to repay the with
needed
completing his goal for which
money was .
a) Festival Leason :
t It is festival season .
two months from now and
the shoe manufacturer ,
Salim ,
has relieved an order from
trader
a
large in town
for 3,000 pairs of shoes to
be delivered in a month time .
-
To complete production on time ,
Salim has to hire
a
few more workers for stitching and pasting work .
-
He has to purchase the raw materials .
-
First ,
he asks the leather supplier to supply leather
now and promises to pay him later .
-
Second ,
he obtains loan in cash from the large
trader as advance payment for 9000
pairs of shoes
with a promise to deliver the whole order by the
end of the month .
-
At the end of the month ,
Salim is able to deliver
the order ,
makes a
good profit ,
and repay the money
that he had borrowed .
→
Negative :
t Swapna ,
a small
farmer , grows groundnut on her three
acres of land .
amount .
Next
year , Swapna takes a
fresh loan for cultivation .
loan .
She is debt
caught in
-
the debt .
* Debt Trap :
cycle of reborrowing ,
or rolling over ,
their -
loan payments
because they are unable to
pay the old loan .
* Terms of Credit :
-
Interest Rate
collateral
O'ocumentation
Mode of Repayment
* Collateral ( SECURITY) :
land building
, ,
vehicle ,
livestock deposits
,
with banks) and uses this as
payment .
* Interest Rate :
* Documentation :
other details .
* Mode of Repayment :
t
Cooperatives also takes loan from banks .
•
Lack of banks in some of the rural areas .
*
Self Help Group :
small
savings among their members .
•
A topical SHG has 95 to 20 members , usually belonging to one
who
neighbourhood ,
meet and save
regularly .
*
Advantages of SHG :
→
People can get timely loans for a
variety for purposes
and at reasonable interest .
nutrition ,
domestic violence ,
etc .
7. Why are most of the poor households deprived from the formal
sector of loans?
[1M, 2016]
A7. Most of the poor households are deprived from the formal
. sector loans because of lack of proper documents and
. absence of collateral.
8. Prove with an argument that there is a great need to expand
formal sources of credit in rural India.
[1M, 2016]
A8. There is great need to expand formal sources of credit in
. rural India because:
3 Marks Question
Informal sector:
No external organisation supervises this sector.
The lenders are mainly money lenders, friends, relatives,
traders and landowners etc.
Collateral is not required, thus it involves risk.
This sector charges higher interest rates without any
rules or regulation.
This could lead to a debt trap.
21.
arguments.
[3M, 2016]
A21. The credit activities of the informal sector should be
. discouraged because:
1. 85% of loans taken by the poor households in the urban areas
are from informal sources. There is no organisation that
supervises the credit activities of lenders in the informal
sector.
2. Informal lenders charge very high interest on their loans: They
try to charge more and more interest on their loans as there
are no boundaries and restrictions.
3. Higher cost of borrowing means a larger part of the earnings
of the borrowers is used to repay the loan.
4. In certain cases, the high interest rate for borrowing can mean
that the amount to be repaid is greater than the income of
borrower. This could lead to increasing debt and debt trap,
therefore the credit activities of the informal sector should be
discouraged.
[3M, 2016]
A22. Benefit of deposits to the depositors:
1. Bank accepts the deposits and pays interest to the
depositor.
2. Banks help people save their money and keep their
money in safe custody of the bank.
3. People can withdraw the money as and when they
require.
4. Banks also grant loans to people for a variety of
purposes. In times of need, individuals, business houses
and industries can borrow money from the banks.
5 Marks Question
23.
In the light of this statement explain as to who can provide them
at a reasonable cost, the private or the public sector and why?
[5M, 2017]
A23. Society as a whole needs several things which the private
. will not be able to provide at a reasonable cost.
24. . How can the formal sector loans be made beneficial for poor
farmers and workers? Suggest any five measures
[5M, 2016]
A24. Formal sector loans can be made beneficial for poor farmers
. and workers in the following ways:
1. Create greater awareness among farmers about formal sector
loans.
2. Process of providing loans should be made easier. It should
be simple, fast and timely.
3. More number of Nationalized Banks/cooperative banks should
be opened in rural sectors. Banks and cooperatives should
increase facility of providing loans so that dependence on
informal sources of credit reduces.
4. The benefits of loans should be extended to poor farmers and
small scale industries.
5. While formal sector loans need to expand, it is also necessary
that everyone receives these loans. It is important that formal
credit is distributed more equally so that the poor can benefit
from cheaper loans.
25. Describe the vital and positive role of credit with examples.
[5M, 2016]
A25. In the festive season, a shoe manufacturer, Ram receives an
. order from a large trader in town for 3,000 pairs of shoes to
.
. time Ram has to hire workers for stitching and pasting work.
. He has to purchase the raw materials. To meet these
. expenses Ram obtains loans from two sources.
First, he asks the leather supplier to supply leather now and
promises to pay him later.
28. What are the various sources of credit in rural areas? Which
one of them is the most dominant source of credit and why?
[5M, 2013]
A28. Moneylenders are the most dominant amongst sources of
. credit for rural households. They constitute an informal
. source of credit. They charge a very high rate of interest on
. loans as they do not require any collateral. They are the most
. convenient source of credit in the rural areas.