Podcast
Questions and Answers
What is a significant consequence of high-interest loans on borrowers?
What is a significant consequence of high-interest loans on borrowers?
- They are more likely to successfully invest in business.
- They typically enhance their credit score.
- They can easily repay loans within a short period.
- They are at risk of falling into debt traps. (correct)
Which of the following describes the role of credit in economic development?
Which of the following describes the role of credit in economic development?
- Credit restricts investment opportunities for new businesses.
- Credit is primarily used for personal consumption.
- Credit contributes to the growth of industries by providing necessary funds. (correct)
- Credit only benefits wealthy individuals.
Why are self-help groups (SHGs) important in the context of finance?
Why are self-help groups (SHGs) important in the context of finance?
- They provide loans with high-interest rates.
- They discourage the formation of financial networks.
- They focus solely on formal banking methods.
- They enhance community savings and promote financial independence. (correct)
What does the term 'demand deposits' refer to?
What does the term 'demand deposits' refer to?
What is a characteristic of formal credit?
What is a characteristic of formal credit?
How do banks generate income from the difference in interest rates?
How do banks generate income from the difference in interest rates?
Why do consumers often fall into debt traps?
Why do consumers often fall into debt traps?
What is one effect of cheap credit on a country's economy?
What is one effect of cheap credit on a country's economy?
Which statement best describes informal sources of credit?
Which statement best describes informal sources of credit?
How does the existence of high-cost borrowing impact economic development?
How does the existence of high-cost borrowing impact economic development?
Why is it important to expand formal sources of credit in India?
Why is it important to expand formal sources of credit in India?
Which of the following is NOT a reason related to high-interest loans leading to moral loss?
Which of the following is NOT a reason related to high-interest loans leading to moral loss?
What effect do informal sources of credit have on poor borrowers?
What effect do informal sources of credit have on poor borrowers?
What challenge does higher borrowing cost pose to investors and farmers?
What challenge does higher borrowing cost pose to investors and farmers?
What aspect of formal sources of credit distinguishes them from informal sources?
What aspect of formal sources of credit distinguishes them from informal sources?
What does the term 'debt trap' refer to?
What does the term 'debt trap' refer to?
Which feature is associated with informal sources of credit?
Which feature is associated with informal sources of credit?
How do formal sources of credit differ from informal sources regarding supervision?
How do formal sources of credit differ from informal sources regarding supervision?
What is the primary goal of a credit cooperative society?
What is the primary goal of a credit cooperative society?
Which of the following best describes 'terms of credit'?
Which of the following best describes 'terms of credit'?
What impact does cheap credit have on producers and traders?
What impact does cheap credit have on producers and traders?
Which of the following statements is true regarding interest rates charged by informal credit sources?
Which of the following statements is true regarding interest rates charged by informal credit sources?
Which of the following accurately describes the difference in asset building between firms using formal and informal credit?
Which of the following accurately describes the difference in asset building between firms using formal and informal credit?
Flashcards
Debt Trap
Debt Trap
A situation where someone takes out a new loan to pay off an existing loan, creating a cycle of unending debt.
Informal Sources of Credit
Informal Sources of Credit
Sources of credit that do not come from regulated organizations, like friends, family, or moneylenders.
Informal Credit Interest Rate
Informal Credit Interest Rate
Higher interest rates compared to formal sources.
Cooperatives
Cooperatives
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Credit Cooperatives
Credit Cooperatives
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Terms of Credit
Terms of Credit
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Formal Source of Credit Interest Rate
Formal Source of Credit Interest Rate
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Formal vs. Informal Credit Supervision
Formal vs. Informal Credit Supervision
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Higher cost of borrowing
Higher cost of borrowing
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Loss of collateral
Loss of collateral
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Reduced profit (borrower)
Reduced profit (borrower)
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Expansion of formal credit
Expansion of formal credit
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Obstacles to growth (expensive credit)
Obstacles to growth (expensive credit)
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Money definition
Money definition
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Barter system problem
Barter system problem
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Money and exchange
Money and exchange
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Modern money forms
Modern money forms
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Demand deposits
Demand deposits
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Currency note value
Currency note value
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Cheque definition
Cheque definition
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Bank cash reserve
Bank cash reserve
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Study Notes
Money and Credit
- Money is a common medium of exchange, store of value, and common measure of value.
- Barter system problem: Double coincidence of wants - both parties need to agree to sell and buy each other's goods.
- Money's role in exchange: Provides a common value for products, simplifying transactions.
- Modern forms of money: Currency and bank money.
- Demand deposits: Bank accounts where funds can be withdrawn on demand.
- Currency acceptance: Authorised by the government, given an assumed value not based on its inherent commodity value.
- Cheques: Instructions to a bank to transfer funds to a specified person.
- Banks holding cash: Maintain a proportion of deposits as cash to handle daily withdrawals.
- Bank income: Difference between interest charged to borrowers and interest paid to depositors.
- Credit: Lending of money, goods, or services with a promise of future repayment.
Cheap and Affordable Credit
- Importance for development: Crucial for investment, business expansion, and economic recovery.
- Reasons for importance:
- Provides financial support during crisis, increasing investment opportunities.
- Makes profit generation or future payment easier.
- Enables scale of production expansion for producers and businesses.
- Supports startups with initial investment.
- Aids asset building capacity.
- Debt trap: Borrowing to repay existing loans.
Informal Sources of Credit
- Definition: Credit from individuals (traders, friends, family) without formal oversight.
- Characteristics:
- Higher interest rates.
- Lack of supervision and regulation.
- Unfair lending practices possible.
Cooperatives
- Definition: Groups of people pooling resources to pursue a common goal, often credit provision.
Terms of Credit
- Definition: General terms and conditions agreed upon between borrower and creditor.
- Components: Collateral, interest rate, repayment mode, and documents.
Formal vs. Informal Credit
- Comparison: Formal credit is regulated and has set terms; informal credit lacks regulation and may have variable terms.
Higher Cost of Borrowing
- Obstacle to growth: Expensive loans can hinder growth through collateral loss, debt traps, reduced profits, and potentially encouraging morally questionable activities.
Expanding Formal Credit
- Importance:
- Protects against informal sector exploitation.
- Promotes overall national development.
- Addresses regional disparities.
Self-Help Groups (SHGs)
- Definition: Community-based groups of women collaborating for savings, education and opportunities.
- Functions:
- Promotes savings and investment habits
- Builds confidence and skills
- Enables collective decision-making
- Addresses social issues (health, nutrition, domestic violence)
- Facilitates microcredit and income generation ventures.
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Description
This quiz explores key concepts related to money and credit, including the functions of money, the challenges of barter systems, and the roles of banks in the economy. Understand the significance of demand deposits, currency acceptance, and the workings of credit in financial transactions.
