Money and Credit
Money and Credit
Money and Credit
Introduction -
Money and Credit
Goods are being bought and sold with the For some, there might not be any actual
use of money. In some of these transactions, transfer of money taking place now but
services are being exchanged with money. a promise to pay money later.
Money Credit
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Introduction -
Why only
money?
Introduction -
Case I Case II
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Introduction -
Money
In the absence of money we would have to rely on the double coincidence of wants.
A system where goods are directly exchanged without the exchange of money.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Introduction -
Money as a medium of exchange
Economy with money Eliminate the need for double coincidence of wants.
Explain
Money as a medium of
exchange for transaction.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Questions
A cheque is a paper instructing the bank to pay a specific amount from the person’s account
to the person in whose name the cheque has been issued.
Advantages
Class 10th - Economics - Money and Credit - Full Chapter Explanation
■ Banks make use of the deposits to meet the loan requirements of the people.
■ Banks mediate between those who have surplus funds (the depositors) and those
who are in need of these funds (the borrowers).
■ Banks charge a higher interest rate on loans than what they offer on deposits.
■ The difference between what is charged from borrowers and what is paid to
depositors is their main source of income.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
The lender supplies the borrower with money, goods or services in return for the promise of
future payment.
● Helps him to meet the ongoing ● The failure of the crop made loan
expenses of production, complete repayment impossible.
production on time, and thereby ● She had to sell part of the land to repay
increase his earnings.
the loan.
● Credit therefore plays a vital and
positive role in this situation.
Analyse
Whether credit would be useful or not, therefore, depends on the risks in the situation
and whether there is some support, in case of loss.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Terms of Credit -
What is terms of credit?
➔ Interest rate, collateral and documentation requirement, and the mode of repayment
together comprise what is called the terms of credit.
DO CO MO Internet
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Terms of Credit -
Documentation Mode of
Interest Rate Collateral
requirement Payment
➔ Terms of credit may vary depending on the nature of the lender and the borrower.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Why?
Class 10th - Economics - Money and Credit - Full Chapter Explanation
Large part of the earnings of the borrowers is used to repay the loan.
Debt trap
➔ People who might wish to start an enterprise by borrowing may not do so because of the
high cost of borrowing.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
➔ The formal sector still meets only about half of the total credit needs of the rural people.
➔ The remaining credit needs are met from informal sources. Most loans from informal
lenders carry a very high interest rate and do little to increase the income of the borrowers.
Solution
Class 10th - Economics - Money and Credit - Full Chapter Explanation
● Thus, it is necessary that banks and cooperatives increase their lending particularly in the
rural areas, so that the dependence on informal sources of credit reduces.
● Secondly, while formal sector loans need to expand, it is also necessary that everyone
receives these loans.
Class 10th - Economics - Money and Credit - Full Chapter Explanation
● Getting a loan from a bank is much more difficult than taking a loan from informal sources.
● Absence of collateral is one of the major reasons which prevents, informal lenders know the
borrowers personally and hence are often willing to give a loan without collateral.
● Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face
similar problems. They help each other, to solve their problems. SHGs promote small
savings among their members
● Members can take small loans from the group itself to meet their needs.
● The group charges interest on these loans but this is still less than what the moneylender
charges.
● After a year or two, if the group is regular in savings, it becomes eligible for availing loan
from the bank.
● Empowerment of members (decision taking power, accountability).
● Provide a platform to discuss and act on a variety of social issues such as health, nutrition,
domestic violence, etc.
Class 10th - Economics - Money and Credit - Full Chapter Explanation