Money and Credit Quiz

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Questions and Answers

What percentage of the total money deposited with banks is kept as minimum cash balance?

15% (correct)

25%

20%

10%

All individuals or communities are allowed to issue currency notes.

False

Name one function of the Reserve Bank of India.

Supervising the functioning of loans in the formal sector.

The modern currency is accepted as a medium of exchange because it is authorized by the __________.

government Signup and view all the answers

Match the following functions of the Reserve Bank of India with their descriptions:

Issues currency notes = Legalizes medium of exchange Supervises loans = Regulates formal lending Fixes interest rates = Guidelines for banks Maintains cash balance = Ensures liquidity for depositors Signup and view all the answers

What is a primary reason people in rural areas prefer informal sources of credit?

Accessibility without collateral Signup and view all the answers

Self Help Groups (SHGs) can apply for loans from banks after pooling their savings for one to two years.

True Signup and view all the answers

What is a cheque?

A cheque is a paper instrument that instructs a bank to pay a specific amount from the account of the drawer to the payee. Signup and view all the answers

The Reserve Bank of India regulates __________ sources of credit.

formal Signup and view all the answers

Match the following terms with their definitions:

Cheque = A payment instrument instructing a bank to pay money SHGs = Groups that pool savings and provide loans to members Collateral = An asset pledged as security for a loan Interest Rate = The cost of borrowing money expressed as a percentage Signup and view all the answers

Which of the following is true regarding informal sources of credit?

They are not regulated by any government organization. Signup and view all the answers

Informal lenders provide loans at lower interest rates than banks.

False Signup and view all the answers

The interest rate charged by informal credit sources is typically __________ than that of formal sources.

higher Signup and view all the answers

What is the role of the Reserve Bank of India (RBI)?

Issuing currency notes Signup and view all the answers

A cheque is a digital form of payment.

False Signup and view all the answers

What is a demand deposit?

A type of bank deposit that can be withdrawn on demand. Signup and view all the answers

The _____ system requires both parties to want what the other offers.

barter Signup and view all the answers

Which of the following is NOT a type of credit source in India?

Insurance Companies Signup and view all the answers

Match the types of deposits with their characteristics:

Demand Deposit = Withdrawn on demand Fixed Deposit = Held for a fixed term Recurring Deposit = Regular monthly savings Savings Deposit = Low-interest, accessible funds Signup and view all the answers

The legal tender in India is the 'rupee' which must be accepted for transactions.

True Signup and view all the answers

What are the two main functions banks perform in the modern banking system?

Mediate between depositors and borrowers. Signup and view all the answers

Study Notes

Money and Credit

Barter System: An early method of trade where goods and services are directly exchanged. It requires a "double coincidence of wants."
Double Coincidence of Wants: Both parties in a barter transaction must want what the other party is offering.
Money as a Medium of Exchange: Money is widely used as a standard for exchanging goods and services.
Currency: A generally accepted form of money, including coins and paper notes. In India, the Reserve Bank of India (RBI) issues currency notes.
Legal Tender: Rupees (₹) are legal tender in India, meaning they must be accepted as a medium of payment.
Deposits with Banks: Money deposited in banks is safe and earns interest. Deposits can be withdrawn on demand, making them "demand deposits."
Cheques: A written instruction to a bank to pay a specific amount from one account to another.
Modern Banking System: Banks act as intermediaries between those with surplus funds (depositors) and those needing funds (borrowers). Banks charge higher interest rates on loans than they offer on deposits, profiting from the difference.

Credit (Loans)

Credit (Loans): An agreement where a lender provides money, goods, or services in exchange for future payment.
Debt Trap: A loan that is difficult or impossible to repay, often due to high-interest rates.
Collateral: An asset owned by the borrower that secures a loan.
Lender's Rights: If a borrower defaults on a loan, the lender can seize the collateral to recover the owed amount.

Credit Sources in India

Formal Credit Sources: Banks and cooperatives, regulated by the Reserve Bank of India (RBI). They usually offer lower interest rates and follow rules and regulations.
Informal Credit Sources: Moneylenders, traders, employers and relatives or friends. This sector usually doesn't operate under government oversight, charging higher interest rates and lacking regulatory requirements. Borrowers face greater risks of being trapped in debt.

Why prefer informal credit in rural areas?

Limited Bank Branch Access: Banks may have limited branches in rural areas.
Collateral Requirements: Poor individuals may lack the collateral necessary to obtain bank loans.

Self-Help Groups (SHGs)

SHGs: Groups of 15-20 people who pool their savings. These groups often become eligible for loans after a period of consistent saving, which helps overcome the collateral requirement hurdle for loans.

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Description

Test your knowledge on the concepts of money and credit. This quiz covers topics such as the barter system, currency, legal tender, and modern banking practices. Understand how money is used as a medium of exchange and explore the functionality of banks in the economy.