Credit and Money Exchange Concepts
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In a Self-Help Group (SHG), decisions regarding savings and loan activities are primarily taken by:

  • Members (correct)
  • Government officials
  • Bank
  • Non-government organization

    • Formal sources of credit include private lenders.

    False

    What is a common disadvantage of unfavourable credit terms for small farmers?

    High interest rates leading to increased debt burden

    Majority of the credit needs of the _________________ households are met from informal sources.

    <p>rural</p> Signup and view all the answers

    Match the following occupations with their possible reasons for needing a loan:

    <p>Construction worker = Purchase of tools/materials Graduate student = Tuition and educational expenses Migrant labourer = Travel expenses and settling costs Small trader = Inventory purchase</p> Signup and view all the answers

    What is one of the main purposes of promoting the use of electronic transactions?

    <p>To reduce the requirement of cash for transactions.</p> Signup and view all the answers

    The Reserve Bank of India website provides data on self-help groups.

    <p>False</p> Signup and view all the answers

    What is the exchange of goods or services without immediate payment referred to as?

    <p>Double coincidence of wants</p> Signup and view all the answers

    The website of the National Bank for Agriculture and Rural Development can be accessed at ______.

    <p><a href="http://www.nabard.org">www.nabard.org</a></p> Signup and view all the answers

    Match the following banking-related terms with their correct descriptions:

    <p>ATM Cards = Cards used for cash withdrawals and electronic payments Credit Cards = Cards that allow borrowing up to a limit for purchases POS Swipe Machines = Devices that allow card payments at retail locations Cheques = Written orders to pay a specified amount from a bank account</p> Signup and view all the answers

    Which of the following is NOT a method of electronic transaction mentioned?

    <p>Cash transactions</p> Signup and view all the answers

    The exchange of shoes for wheat requires both parties to agree on the transaction without using money.

    <p>True</p> Signup and view all the answers

    List two purposes of using money as a medium of exchange.

    <p>Facilitates transactions and avoids the limitations of barter.</p> Signup and view all the answers

    What is the primary role of money in an economy?

    <p>To serve as a medium of exchange</p> Signup and view all the answers

    In a barter system, money is required for exchanges.

    <p>False</p> Signup and view all the answers

    What is the term for the situation where two parties each want what the other has in a barter system?

    <p>double coincidence of wants</p> Signup and view all the answers

    In an economy that uses money, the risk of _____ is eliminated.

    <p>double coincidence of wants</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Medium of exchange = An instrument used to facilitate transactions Barter = Direct exchange of goods and services Currency = A system of money in general use Wages = Payment made to workers for services rendered</p> Signup and view all the answers

    Which of the following exemplifies uses of money in an exchange?

    <p>Selling clothes for cash</p> Signup and view all the answers

    Money is only useful if it is backed by gold or silver.

    <p>False</p> Signup and view all the answers

    Why is money considered an important element in modern economies?

    <p>It facilitates trade and transactions by acting as a medium of exchange.</p> Signup and view all the answers

    What is a debt trap in the context of the content?

    <p>A scenario where borrowing leads to further financial struggles.</p> Signup and view all the answers

    Farmers usually repay their crop loans before they harvest their crops.

    <p>False</p> Signup and view all the answers

    In the document, what dependency is emphasized for the repayment of loans?

    <p>Income from farming.</p> Signup and view all the answers

    A loan agreement specifies an interest rate that the borrower must pay, along with the ________.

    <p>repayment of the principal</p> Signup and view all the answers

    What risk did Swapna face that worsened her financial situation?

    <p>Crop failure.</p> Signup and view all the answers

    What are potential factors that make Swapna's situation risky?

    <p>Pesticides, role of moneylenders, climate.</p> Signup and view all the answers

    Lenders may demand collateral as security against loans.

    <p>True</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Debt trap = A situation making recovery from loans difficult Loan agreement = Specifies terms like interest and repayment Collateral = Security offered against loans Pesticides = Chemicals used to protect crops from pests</p> Signup and view all the answers

    Which sector provides loans at a higher interest rate?

    <p>Informal sector</p> Signup and view all the answers

    The Reserve Bank of India supervises both formal and informal lending activities.

    <p>False</p> Signup and view all the answers

    What is the primary reason why borrowers prefer formal credit sources over informal ones?

    <p>Lower interest rates</p> Signup and view all the answers

    Cooperative banks and society account for _____ percent of credit sources to rural households in India.

    <p>10</p> Signup and view all the answers

    Match the following types of lenders with their characteristics:

    <p>Formal lenders = Supervised by the RBI Informal lenders = Higher interest rates and no supervision RBI = Monitors lending practices Borrowers from informal sector = Less income available after loan repayment</p> Signup and view all the answers

    What is a significant consequence of borrowing from the informal sector?

    <p>Higher cost of borrowing</p> Signup and view all the answers

    The RBI monitors how much banks lend to profit-making businesses only.

    <p>False</p> Signup and view all the answers

    What percentage of the loans taken is represented by the borrowers classified as rich?

    <p>16</p> Signup and view all the answers

    Study Notes

    Money as a Medium of Exchange

    • Money simplifies transactions by eliminating the need for a "double coincidence of wants" in a barter system
    • Money acts as an intermediate in the exchange process, making it a medium of exchange.

    Credit

    • Credit is the ability to borrow money and repay it later.
    • Credit can be useful, but it can also lead to debt traps.
    • The terms of credit can include interest rates, collateral, and loan repayment periods.

    Formal and Informal Credit

    • Formal lenders: Include banks, cooperatives, and government agencies.
    • Informal lenders: Include moneylenders, landlords, and family and friends.
    • Informal lenders often charge higher interest rates than formal lenders.
    • The Reserve Bank of India (RBI) supervises the formal credit sector, but not the informal credit sector.

    The Importance of Credit

    • Credit is vital for economic development, enabling individuals and businesses to invest in new ventures, expand operations, and trade goods.

    Terms of Credit

    • The terms of credit can be unfavorable to borrowers, especially small farmers, if high interest rates and collateral requirements are imposed.
    • Small farmers need access to affordable credit for their operations.

    Sources of Credit for Rural Households

    • Cooperative banks and societies play a role in extending credit to rural households.

    Issues of Credit

    • Informal credit sources often have higher interest rates, making them more expensive for borrowers.
    • Individuals, especially those in rural areas, may face higher costs of borrowing and increased debt burdens.

    Role of the RBI

    • The RBI regulates formal banks and monitors their lending activities to ensure responsible lending practices.
    • The RBI also ensures banks maintain minimum cash balances and provide information on their lending activities.

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    Related Documents

    Chapter 3: Money and Credit PDF

    Description

    Explore the essential concepts of money as a medium of exchange and the role of credit in economic transactions. This quiz covers formal and informal credit systems, their implications, and the significance of credit for economic development. Test your understanding of these financial fundamentals.

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