NCERT Solutions Class 10 for Social Science Economics Chapter 3 Money and Credit : In this post, we will share with you all the detailed NCERT Solutions of Class 10 Social Science Economics Chapter 3 Money and Credit. This will contain both in-text and back-exercise questions for Science and Social Science, and all exercise questions for Mathematics. For all school and board level examinations, doing all the NCERT Questions is a must.

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Class 10 Social Science Economics Chapter 3 – Money and Credit

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Exercise Questions (Page 52-53)

Question 1:
In situations with high risks, credit might create further problems for the borrower. Explain.

Answer 1:
In situations with high risks, credit might create further problems for the borrower. Credit involves a certain amount of loan that is taken by a borrower from a lender at a high-interest rate. In case there is a failure, and the borrower faces loss, then he further falls in the trap of credit. This is known as a debt trap. The borrower has to repay the credit along with interest applied by the lender, and he further falls into the trap of credit, increasing the problems for the borrower. The borrower also has to sell a part of his or her land to repay the loan.

Question 2:
How does money solve the problem of double coincidence of wants? Explain with an example of your own.

Answer 2:
‘Double coincidence of wants’ is when whatever a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. Money solved the problem of double coincidence of wants because after the introduction of money, people could use money as an intermediate to buy or sell things and no specific buyer or seller was required for interchanging of products. For example, a trader wishes to sell 10 sacks full of rice and expects to get it in exchange for five sacks of cereal. To find a suitable buyer to sell the sacks of rice in exchange for cereals would be very tough. However, the money will solve this problem, and the trader can sell the sacks of rice to someone who needs it and in return, buy cereals from the money he gets from the buyer of rice.

Question 3:
How do banks mediate between those who have surplus money and those who need money?

Answer 3:

• People hold money as deposits with banks which pay an interest rate on them.
• People do not withdraw their cash daily.
• The banks, therefore, hold only 15 percent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the bank on any given day.
• Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
• They use a major portion of the deposits to extend loans to those who need money.
• The banks make use of deposits to meet the loan requirements of the people.
• Thus, in this way, the banks mediate between those who have surplus money and those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two is the main source of income of the banks.

Question 4:
Look at a 10 rupee note. What is written on top? Can you explain this statement?
“Reserve Bank of India” and “Guaranteed by the Government” are written on top.

Answer 4:
In India, the Reserve Bank of India issues currency notes on behalf of the central government. The statement means that the currency is authorized or guaranteed by the Central Government. That is, Indian law legalizes the use of the rupee as a medium of payment that can not be refused in a setting transaction in India.

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Question 5:
Why do we need to expand formal sources of credit in India?

Answer 5:
Formal sources of credit are the Government authorised organisations that are eligible to lend money to people. It is important to expand formal sources of credit in India because the informal sources are not registered and lend money to people at very high-interest rates which is unfair and must not be practised. If formal sources of credit are increased, people will be able to borrow money at lesser interest rates and will not be liable to do any extra work for the borrower. Especially in India, if formal sources of credit are increased, people will be able to take loans and use them for the development of the country.

Question 6:
What is the basic idea behind the SHGs for the poor? Explain in your own words.

Answer 6:
The basic behind the SHGs is to provide a financial resource for the poor through organizing the rural poor especially women, into small Self Help Groups. They also provide timely loans at a responsible interest rate without collateral. Thus, the main objectives of the SHGs are:

1.To organize rural poor especially women into small Self Help Groups.
2.To collect savings of their members.
3.To provide loans without collateral.
4.To provide timely loans for a variety of purposes.
5.To provide loans at a responsible rate of interest and easy terms.
6.Provide a platform to discuss and act on a variety of social issues such as education, health, nutrition, domestic violence, etc.

Question 7:
What are the reasons why the banks might not be willing to lend to certain borrowers?

Answer 7:
The reasons why banks might not be willing to lend money to certain borrowers are given below:

1.Some people fail to provide the required set of documents to get a loan
2.Irregular wages and no fixed job is also one reason because it increases the chances of non-repayment of loans
3.Certain borrowers are added to the list of NPAs
4.There is high risk in approving loans to entrepreneurs

Question 8:
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

Answer 8:
The Reserve Bank of India monitors the amount of money that banks loan out, and also the amount of cash balance maintained by them. It also ensures that banks give out loans not just to profiteering businesses but also to small cultivators, small scale industries, and small borrowers. Periodically, banks are supposed to submit information to the RBI on the amounts lent, to whom, and at what rates of interest.

This monitoring is necessary to ensure that equality is preserved in the financial sector, and that small industry are also given an outlet to grow. This is also done to make sure that banks do not loan out more money than they are supposed to, as this can lead to situations like the Great Depression of the 1930s in the USA, which greatly affected the world economy as well.

Question 9:
Analyse the role of credit for development.

Answer 9:
Credit is one of the most major aspects of the development of a country. Affordable credit plays a very important role in the country’s development. People need loans for different reasons and to meet this requirement credit is very important. In India, a major part of the population is engaged in agricultural activities; credit plays a very crucial role in agricultural activities. People can borrow money and use modern farming methods to grow crops which are more reliable than the traditional methods of growing crops. Apart from this, there are small scale industries, business and various other sectors where credit can help people and ultimately result in the development of the country.

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Question 10:
Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.

Answer 10:
Manav will decide whether to borrow from the bank or the moneylender on the basis of the following terms of credit:

1.rate of interest
2.requirements availability of collateral and documentation required by the banker.
3.mode of repayment.

Question 11:
In India, about 80 percent of farmers are small farmers, who need cultivation.
(a) Why might banks be unwilling to lend to small farmers?
(b) What are the other sources from which the small farmers can borrow?
(c) Explain with an example of how the terms of credit can be unfavorable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.

Answer 11:
(a) The banks might be unwilling to lend to small farmers because the farmers usually take crop loan at the beginning of the season and repay the loan after harvest. Repayment of loan is dependent on the income from farming. And in case of crop failure, repayment becomes impossible. In such cases, the recovery of loan from the small farmers becomes very difficult. The small farmers have to sell part of the land to repay the loan that is why banks do not want to give loans to small farmers.

(b) Small farmers usually borrow from moneylenders or agricultural traders.

(c) In case of failure of crops, it becomes impossible for small farmers to repay the loan by selling their crops. Thus in order to repay, the small farmers sell a part of the land. This leads to worsening of their condition. Sometimes, small farmers give collateral or security against loans. The collateral generally consists of land, building, vehicles, livestock. In case of nonpayment of loan, the lender may sell the collateral to recover loan. Under above conditions, the terms of credit become unfavourable for the small farmers

(d) Besides banks, the other major source of cheap credit in rural areas are the cooperative societies or cooperatives. Members of a cooperative society, pool their resources for cooperation in certain areas. The cooperative accepts deposits from its members. With these deposits as collateral, the cooperative obtains loan from the bank. These funds are used to provide loans to members.

Question 12:
Fill in the blanks:

1.Majority of the credit needs of the ____households are met from informal sources.
2. __________costs of borrowing increase the debt-burden. 3.__________issues currency notes on behalf of the Central Government. 4.Banks charge a higher interest rate on loans than what they offer on ____.
5._________is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Answer 12:

1. Majority of the credit needs of the poor households are met from informal sources.
2. High costs of borrowing increase the debt-burden.
3. Reserve Bank of India issues currency notes on behalf of the Central Government.
4. Banks charge a higher interest rate on loans than what they offer on deposits.
5. Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Question 13:
Choose the most appropriate answer.
(i) In an SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organization.

(ii) Formal sources of credit do not include
(a) Banks.
(b) Cooperatives.
(c) Employers.

Answer 13:
(i) (b)
(ii) (c)

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For More Content related to Class 10 –

• Get NCERT Solutions of all Science Chapters of Class 10
• Get NCERT Solutions of all Mathematics Chapters of Class 10
• Get NCERT Solutions of all Social Science Chapters of Class 10
• Get Notes, PYQs, Free E-Books, and other material for Class 10
• Join our Telegram Channel for Latest Updates here

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