NBSE Class-10| Social Science Notes/Solutions| Chapter-17 Money and Financial System

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I This chapter NBSE Class-10| Social Science Notes/Solutions| Chapter-17 Money and Financial System. which is a part of the class 10 syllabus of social science for students studying under Nagaland Board of School Education:

NBSE Class-10| Social Science Notes/Solutions| Chapter-17 Money and Financial System

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EXERCISE

Chapter-17

I. Multiple Choice Questions

1.The system of exchanging goods for other goods is called

(a) Monetary system

(b) Credit system

(c) Barter system

(d) Exchange system

Ans: (c) Barter system

2. Currency notes in India are issued by

(a) SBI

(b) UBI

(c) RBI 

(d) Regional Rural Banks

Ans: (c) RBI

3. Which of the following is not an informal source of credit?

(a) Reserve Bank of India 

(b) Moneylenders

(c) Chit funds

(d) Indigenous bankers

Ans: (a) Reserve Bank of India 

4. A Self-Help Group usually has

(a) 5-10 members

(b) 10-15 members

(c) 15-20 members

(d) 20-25 members

Ans: (c) 15-20 members

5. Majority of the credit needs of the poor households are met from

(a) Formal sources 

(b) Informal sources

(c) Self-Help groups

(d) Government

Ans: (b) Informal sources

6.Which of the following is not a modern form of money?

(a) Paper notes

(b) Demand deposits

(c) Silver coins

(d) All of these

Ans: (d) All of these

II. Very Short Answer Questions

1.What do you mean by the C-C economy?

Ans: The economic system based upon barter is known as Barter Economy or C-C economy.

2.What was the main difficulty of barter system?

Ans: Main difficulty of the barter system include, double coincidence

of wants and lack of a common measure of value.

3. Define money.

Ans: Money is anything which is widely accepted in payments for goods, or, in discharge of other kinds of transaction. It is a medium of exchange.

4. Name the two categories of financial institutions.

Ans: The two categories of financial institutions are Formal and Informal.

5. Define credit.

Ans: Credit refers to an agreement reached between the lender and the borrower of money, goods or services in return for the promise of future payment.

6.What is meant by legal tender money?

Ans: Currency notes and coins are known as legal tender money.

III. Short Answer Questions

1. Why are demand deposits considered as money?

Ans: Demand deposits can be withdrawn on demand and hence are called demand deposits. Time deposits, or fixed deposits are made for a certain time period do not fall under the category of demand deposits. Demand deposits are considered as money because demand deposits (like money) can be used as medium of exchange and payments, in case of demand deposits, can be made through cheque. 

2.Mention the two functions that a financial institution must perform to become a commercial bank.

Ans: The two functions that a financial institution must perform to become a commercial bank are: 

(i) Acceptance of demand deposits that have cheque facilities.

(ii) Lending.

IV. Long Answer Questions

1. State the differences between informal and formal sources of credit.

Ans: The differences between informal and formal sources of credit

are as follows:-

(i)Formal sources of credit refer to formal financial institutions such as cooperative banks and other commercial banks where as informal sources refers to those informal financial institutions such as indigenous bankers, money – lenders, traders, finance companies etc.

(ii) Formal sources of credit are governed by a set of rules and regulations where as informal sources of credit are not regulated and controlled by any authority.

(iii)The cost of borrowers in informal credit is much higher as compared to formal credit.

(iv) The poor household depend much more on informal credit where as the rich household depend more on formal credit.

(v) The Reserve Bank of India (RBI) plays a crucial role in formal credit as compared to informal credit which is not supervised by any organization.

2.State any three advantages of formal sector loans

Ans: Three advantages of formal sector loans are:

(1) Loans from banks and co-operatives are relatively much cheaper. Interest rate remains around 8 to 12% per annum. 

(ii)Formal credit saves the borrower from falling into debt-trap.

(iii)Many people can borrow cheaply for a variety of different needs. Farmers can grow crops, unemployed youth can set up small- scale industries or can trade in goods.

3. What is double coincidence of wants? Why it is not required in an economy where money is in use?

Ans: The barter system requires a double coincidence of wants on the part of those who want to exchange goods or services. It is necessary for a person who wishes to trade his good or service to find some other person who is not only willing to buy his good or service, but also possesses that good which the former wants. This is known as double coincidence of wants. For example, suppose a person possesses rice and wants to exchange it for sugar. In the barter system, he has to find out a person who not only has sugar but also wants rice in return. But such a double coincidence is a rare possibility.

It is not required in an economy where money is in use because money eliminates the need for double coincidence of wants.

It is no longer necessary for the person who possesses/produces rice to look for a sugar producer who will buy his rice and at the same time sell him sugar. All he has to do is to find a buyer of his rice in the market. Once he sells his rice for money. Then he can purchase sugar, his desired commodity, or any other commodity

from the market. Since money acts as an intermediate in the exchange process, it is called a medium of exchange.

4. Describe the evolution of money as a medium of exchange.

Ans: Currency notes and coins are the modern forms of money. But when we review the history of the evolution of money, we find that money had appeared in different forms before taking the final form as we see it today.

The historical origin of money can be traced back to the barter system that existed in olden days. In the initial stages, money took the form of commodity money. In ancient times, many commodities such as grain, cattle, tobacco etc. were used as money. Due to several disadvantages of commodity money (such as lack of uniformity and standardisation, indivisibility, perishable nature of some goods, difficulty in storing etc.), some precious metals like gold, silver, copper etc. began to be used as money. But on account of its bulkiness, a large sum of money in terms of metals was not easily portable. Moreover, it was also unsafe to carry precious metals from one place to another. This problem finally led to the introduction of paper money.

The money made of paper is known as paper money. Nowadays, issue of paper money is the sole monopoly of the central bank of a country. In India, the Reserve Bank of India (India’s central bank) issues currency on behalf of the government. No other individual or organisation is permitted to issue currency. Moreover, the law also grants currency the status of legal tender money. In other words, as per Indian law, no one can refuse the use of rupee as medium of payments in settling transactions. That is why, rupee is widely accepted as medium of exchange.

5. List any four non-institutional (informal) sources of finance in India. Why do poor households in India still depend on informal sources of credit?

Ans: Four non-institutional (informal) sources of finance in India are indigenous bankers, money-lenders, traders and employers.

As mentioned earlier, the poor households are still dependent on informal sources of credit. It is because

(a) Banks are not found everywhere in rural areas.

(b) Bank loans require proper documentation and collateral.

Lack of collateral is perhaps the major reason which prevents the poor households from availing bank loans. Further, local moneylenders remain willing/ready to offer loans without security. The borrower can approach the moneylender even in the state of non-payment of earlier loan. However, moneylenders (known as banias, mahajans, sahukars etc.) indulge in various malpractices such as false manipulation of loan records, and extracting forced labour from the borrower, besides charging very high interest rate.

6. Describe the functioning of SHGs in India.

Ans: Self Help Group (SHG) is a way of providing loans to the poor. Usually a SHG has 15 to 20 members belonging to one neighbourhood. The members of the group meet and save regularly. They save from 25 to 100 or more per member. Members can avail small loans from the group to meet their needs. The group charges a reasonable rate of interest, which of course is much lower than what the local moneylender charges. If the SHG is regular in its savings, it becomes eligible for bank loans. Bank loan is sanctioned in the name of the SHG which is meant for creating self-employment opportunities for the members For instance, small loans are provided to the members for getting mortgaged land released, for meeting working capital needs (e.g. buying

seeds, fertilisers, raw materials like bamboo and cloth), for housing materials, for acquiring assets like sewing machine, handlooms, cattle, etc.

The SHG decides regarding loans – the purpose and amount, interest rate, mode of repayment etc. It is the group which is responsible for the repayment of the loan. If any member of the group is not repaying the loan amount as scheduled, the case will be seriously taken up by other members in the group. It is because of this feature of an SHG that banks are willing to lend to the poor organised in the SHGs. They do not ask even for collateral from the SHGS.

In this way, SHGs help poor borrowers overcome the problem of lack of security. Due to SHGs, the rural poor are becoming self- reliant. Moreover, SHGs provide a platform for their members to discuss and act on a number of social problems such as health, nutrition, domestic violence etc.

Chapter No.Chapter’s Name
UNIT-IINDIA AND THE CONTEMPORY WORLD
Chapter 1The Rise of Nationalism In Europe
Chapter 2The Nationalist Movement in Indo-China
Chapter 3Nationalism in India
Chapter 4Trade and Globalism
UNIT-IIRESOURCES (INDIA)
Chapter 5Resources
Chapter 6Power Resources
Chapter 7Agriculture
Chapter 8Manufacturing Industries
Chapter 9Transport and Communication
Chapter 10Map Reading
UNIT-IIIDEMOCRATIC POLITICS
Chapter 11Working of Democracy
Chapter 12Power Sharing Mechanism in Democracy
Chapter 13Competition and Contestations in Democracy
Chapter 14Outcomes of Democracy
Chapter 15Challenges of Democracy
UNIT-IVUNDERSTANDING AN ECONOMY
Chapter 16Development
Chapter 17Money and Financial System
Chapter 18Role of Services Sector in Indian Economy
Chapter 19Consumer Awareness
UNIT-VNAGALAND
Geography Section

Additional Questions

I.Multiple Choice Questions

1. Money

(a) Eliminates double-coincidence of wants

(b) Acts as a common measure of value 

(c) Acts as a standard of deferred payments 

(d) All the above

Ans:-(b)Actsasa common measure of value

2.Terms of credit are with respect to:

(a) Interest rate

(b) Collateral

(c) Documentation

(d) All the above

Ans:-(d) All the above

3. Credit or loan refers to an agreement between:

(a) Lender and the borrower

(b) Consumer and producer

(c) Government and tax payers

(d) All the above

Ans:-(a) Lender and the borrower

4. An asset that the borrower uses as a repaymtllt guarantee to a lender is termed as a:

(a) Deposit 

(b) Collateral 

(c) Advance 

(d) All the above

Ans:-(h) Collateral

II. Very Short Answer Questions

1. Mention two constituents of Money?

Ans:-Money has two constituents:

(i) Currency notes and coins and, 

(ii) demand deposits held in bank.

2. What is a Cheque?

Ans:-A cheque is paper instructing the bank to pay a specific amount to the person in whose name the cheque has been issued.

III. Short Answer Questions

1. Mention the two main features of a commercial bank.

Ans:- The two main features of a commercial bank are:

(i) It accepts deposits from the public. These deposits can be withdrawn by cheques and are repayable on demand. (ii)A commercial bank uses the deposit money for lending and for investment in securities.

2.What are the other informal sources of credit?

Ans:-The other informal sources of credit are:

(i) Chit funds: The chit funds are saving institutions. A chit fund has regular members who make periodical subscriptions to the fund. The periodic collection is given to some member of the chit fund selected on the basis of an agreement reached among the member.

(ii) Private Finance Companies: There is a large number of finance companies operating in the country’s unregulated credit market. There is hardly any information available about the amount of lending business done by tehm. The principal source of their funds is deposits from the member. The loans are given by these companies at relatively reasonable rates of interest.

3.What does it mean by narrow and broad definition of money?

Ans:- The narrow definition of money is based upon its medium of exchange function. Under it only currency notes and coins are included in money. On the other hand, broad definition of money, besides including currency-notes and coins, also includes some other things like time deposits at banks and post offices. These financial assets are highly liquid but there are not as liquid as money is. They have high degree of liquidity (moneyness) but are not generally acceptable in payments. These assets need first to be converted into demand deposits.

4. Explain the different kinds of money.

Ans:-There are three kinds of money. They are:

(a) Standard Money: Standard money is legal tender money. It is legal tender in the sense that no one can refuse to accept it. Standard money can be of two types:

(i) Paper notes and (ii) Coins

(b) Bank Money: Bank money (also called credit money) refers to bank deposits which can be withdrawn by means of bank cheques and bank drafts.

(c) Near Money: Near money refers to the highly liquid assets which can easily be converted into cash on short notice such as time deposits, treasury bills etc.

IV. Long Answer Questions

1. What is the importance of credit?

Ans:-Credit plays an important role in economic development of a country. It (credit) refers to an agreement reached ypbetween the lender and the borrower of money, goods or services in return for the promise of future payment. A large number of credit transactions take place in our day to-day activities. Credit (loan) helps the borrower to meet the ongoing expenses of production, complete production on time and thereby increase his income.

The demand for credit in rural areas comes from farmers. They need credit for crop production which involves expenditures on seeds, fertilisers, pesticides, water, electricity, repair of equipments etc. There remains a time period of three to four months when the farmers purchase these inputs and repay when they sell the crop. So farmers usually take crop loans at the beginning of the season and repay the amount soon after harvesting.

However, credit may push a person into a debt-trap. This happens when a crop fails. In such a situation, repayment of loan becomes impossible. The borrower has to sell a portion of his land to payoff the debt. Whether credit would be useful or not, depends on the risks in the situation and on the support in case of loss.

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