Class 10 Social Science - Money & Credit PDF

CLASS 10 NOTES SOCIAL SCIENCE Money and Credit PRASHANT KIRAD  PRASHANT KIRAD Money and Credit Barter System The barter system is an early method of trade where goods and services are directly exchanged for other goods a...

CLASS 10 NOTES SOCIAL SCIENCE Money and Credit PRASHANT KIRAD  PRASHANT KIRAD Money and Credit Barter System The barter system is an early method of trade where goods and services are directly exchanged for other goods and services without using money. Double coincidence of wants The double coincidence Money as a medium of exchange of wants refers to the situation in a barter The use of money is a very large part of our Everyone system where both life. Money is widely used as a medium of exchange as goods are exchanged with money. parties must want what the other offers in Modern forms of money D order to make a trade. RA CURRENCY: Currency is a generally accepted form of money, Money KI including coins and paper notes. In India, the Reserve Bank of India (RBI) issues Anything which is currency notes on behalf of the central T legalized by the government. AN The law legalizes the use of ‘rupee'(₹) as a medium government of the of payment that cannot be refused in setting country that helps in H transactions in India. medium of exchange and Therefore the 'rupee’ (₹) is widely accepted as a AS measure the value of medium of exchange. goods and services. Deposits with banks PR Other forms in which people hold money are deposits with banks. Money deposited in Banks is safe with the bank and people also get interest on the deposited amount. The deposits in the bank accounts can be withdrawn on demand. Hence, these deposits are also called demand deposits. Cheque Facility 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. Modern Banking System Banks mediate between those who have extra funds (the depositors) and those who need those funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. This difference between interest is bank's main source of income.  PRASHANT KIRAD Credit (Loans) Credit (loans) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. Loans are both good and bad, in one situation it can increase a person’s earnings, in another situation it may push the person into a debt trap. TERMS OF CREDIT: Debt trap Debt trap is a situation These are the specific conditions under which a in which a loan is loan is provided, including payment methods, difficult or impossible interest rates, loan duration, and other related terms. to repay, it is mainly Collateral: This refers to an asset the borrower caused due to high owns (like land, buildings, vehicles, livestock, or interest. bank deposits) that serves as a security for the lender until the loan is fully repaid. Common forms of collateral include land titles, bank deposits, and livestock. D Lender's Rights: If the borrower defaults on the RA loan, the lender is entitled to sell the collateral to recover the owed amount. KI Credit Sources in India: T Loans can be categorized into two main types: formal sector loans and informal AN sector loans. Formal sector loans include those from banks and cooperatives, while informal sector loans come from sources like moneylenders, traders, employers, and even relatives or friends. H AS FORMAL SOURCE OF CREDIT INFORMAL SOURCE OF CREDIT PR Their work is regulated by RBI. They do not work under any They charge a lower rate of government organization. Interest than informal sources. They charge a higher rate of They follow rules and regulations interest than formal sources. formed by the government. They do not follow most of the rules and regulations. Formal credit can help prevent Borrowers are at higher risk of people from falling into a debt falling into a debt trap due to trap. high interest rates. It might require collateral for It does not require any the credit. collateral. The rate of interest is on a yearly Generate rates of interest basis. every month. E.g.: Banks and cooperatives. Eg: Money lenders, and traders.  PRASHANT KIRAD Why do people in rural areas prefer informal sources of credit?? Banks have limited reach in rural areas, whereas informal lenders are more readily available in villages. Poor individuals often face difficulty in securing bank loans due to the requirement of collateral, which they usually do not possess. Informal lenders provide loans without collateral, making them more accessible to the poor. However, the very high interest rates charged by informal sources push people to explore alternative borrowing options. Self Help Groups (SHGs for Poors): D SHGs (Self Help Groups) consist of 15-20 members who regularly meet and RA pool their savings. The savings amount ranges from ₹25 to ₹100 or more, depending on each person’s capacity. KI After one to two years of consistent savings, the group becomes eligible to apply for loans from banks. T SHGs help their members overcome the challenge of not having collateral for AN loans. Decisions on loans, such as interest rates, duration, purpose, and loan amounts, are made collectively by the group members. H If a member is unable to repay their loan, other members can contribute on AS their behalf. This feature makes banks more willing to lend to SHGs. Members can also borrow small loans from the group itself. Regular meetings offer a platform to discuss and address various social issues. PR top 7 questions Q1. Define Cheque. Ans: A cheque is a paper instrument that instructs a bank to pay a specific amount from the account of the person issuing the cheque (the drawer) to the person whose name is written on the cheque (the payee). Cheques allow for payment to be made without the need for cash. Q2. Compare and contrast the role of formal and informal source of credit.  PRASHANT KIRAD FORMAL SOURCE OF CREDIT INFORMAL SOURCE OF CREDIT Their work is regulated by RBI. They do not work under any They charge a lower rate of government organization. Interest than informal sources. They charge a higher rate of They follow rules and regulations interest than formal sources. formed by the government. They do not follow most of the rules and regulations. Formal credit can help prevent Borrowers are at higher risk of people from falling into a debt falling into a debt trap due to trap. high interest rates. It might require collateral for It does not require any the credit. collateral. The rate of interest is on a yearly Generate rates of interest basis. every month. D E.g.: Banks and cooperatives. Eg: Money lenders, and traders. RA Q3. Write any three reasons for the banks and cooperative societies to KI increase their lending facilities in rural areas. Ans: Three reasons for banks and cooperative societies to increase lending T facilities in rural areas: AN Reduce dependence on informal credit: Provides loans at lower interest rates, reducing exploitation by moneylenders. H Boost agricultural development: Helps farmers invest in better resources, AS increasing productivity. Promote self-employment: Encourages small businesses and self-reliance PR through affordable loans. Q4. Describe any four advantages of Self-Help Groups for the poor. Ans: This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighbourhood so that they can meet and save regularly. The four advantages of Self-Help Groups for the poor are: When the group is regular in saving for a year or two then the group is eligible for getting a loan from the bank. Banks provide loans in the name of the group and then the SHG gives loans to its members at a very low rate of interest. Loan matters are taken very seriously if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get a loan from the bank even though they have no collateral.  PRASHANT KIRAD The loan is provided to help them create self-employment opportunities. SHG helps women by making them financially self-reliant and provides a platform to discuss and act on a variety of social issues. Q5. How are deposits with banks beneficial for the individual as well as for the nation? Explain with examples. {Delhi 2015} Ans: Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. The rest of the amount is used to extend the loan to the borrowers. This helps people to run and expand their businesses which will increase the individual income and finally the country’s income. D Q6. Explain any three functions of the Reserve Bank of India. Ans: Functions of Reserve Bank of India. RA KI Supervises the functioning of loans in the formal sector. It issues guidelines for fixing rates of interest on deposits and lending by T banks. AN It issues currency notes on behalf of the Central Government. Maintain checks and balances. H Q7. Why is the modern currency accepted as a medium of exchange without AS any uses of its own? PR Ans: It is authorised by the government of the Country. It is issued by Apex Bank on behalf of the Central Government, in India Reserve Bank issues currency notes. No other individuals or community is allowed to issue currency. The law of the country legalized its use as a medium of payment. No one can refuse the currency. 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