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Money and Credit (Extra Notes)

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25 views

Money and Credit (Extra Notes)

Uploaded by

n4zneen1509
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Money and Credit (Extra Notes)

1. Define money.

Ans: Money is anything which is generally accepted by the people in exchange of goods and
services or in repayment of debts.

2. What is double coincidence of wants?

In a barter system, commodities are exchanged with commodities without the use of money.
When in this exchange both the parties agree to buy and sell each other’s commodities. This is
called double coincidence of wants.

3. Mention some functions of money:

Ans: a. Medium of exchange

b. Measure of value.

c. Standard of demand payments

d. Store of value.

4. What does ‘terms of credit’ include?

Ans: While giving loan, the lender specifies certain terms and conditions relating to the loan to
be followed by the borrower which is known as terms of credit. It includes

a. interest rate

b. collateral

c. documentation required

d. mode of payment

5. What are main functions of Reserve Bank of India?

Ans. The main functions are:

(i) Issue of currency: the central bank is given the sole monopoly of issuing currency in order to secure
control over volume of currency and credit. These notes circulate throughout the country as legal
tender money.

(ii) Banker to the government: central bank functions as a banker to the government – both central and
state governments. It carries out all banking business of the government.

(iii) Banker‘s bank and supervisor: It acts as a bank of central clearance, settlements and transfers of
money.

(iv) Controller of credit and money supply: it is an important function of a central bank to control
credit and money . Central bank has a monopoly of issuing notes and thereby can control the volumes
of currency. It
6. What do you mean by collateral?

Ans: Collateral is an asset that the borrower owns such as land, building, vehicle, livestocks,
deposits with banks, and uses this as a guarantee to a lender until the loan is repaid.

b. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to
obtain payment.

c. Property such as land titles, deposits with banks, livestock are some common examples of
collateral used for borrowing.

7. What are demand deposits? What are their advantages? Why are demand deposits
considered as money?

Ans: 1. Deposits in a bank which can be withdrawn on demand are called demand deposits.

2. ). It is the safer place to keep money as compared to the house or a working place.
ii). People can earn interest on the deposited money.
iii). People have the provisions to withdrawn the money as and when they require.
iv). People can also make payment through cheques.

3. It also provides the facility of medium of exchange which is a function of money, when
payments are made by cheques.

8. What are the modern forms of money?

Ans: The modern forms of money are:

a. Currency – paper notes and coins

b. Demand Deposits – Cheque, Demand Draft and Credit cards

9. Explain “Loans from Cooperatives”.

Ans: 1. Cooperatives accept loans from its members which becomes the basis (collateral) to
obtain huge loan from the banks.

2. These amounts are used to provide loans to members for purposes such as purchase of
agricultural implements, loans for cultivation, construction of houses and a variety of other
expenses.

3. Another round of .ending can take place after existing loans are repaid.

4. There are different types of cooperatives such as farmers cooperatives, weavers cooperatives,
etc.

10. Why is it necessary for RBI to supervise the functioning of banks?

Ans: It is necessary for RBI to supervise the functioning of banks because

a. The paper currency standard has to be directed by a central authority i.e., RBI.
b. Sometimes banks due to profit motive and competition do not follow a common policy
according to national requirements.

c. RBI compels the banks to follow the appropriate policy under economic situation.

11. Why is rupee widely accepted as a medium of exchange?

Ans: a. In India, the Reserve Bank of India issues currency notes on behalf of the central
government.

b. As per Indian law, no other individual or organization is allowed to issue currency.

c. Moreover, the law legalizes the use of rupee as a medium of payment that cannot ve refused in
settling transactions in India.

d. No individual in India can legally refuse a payment made in rupees.

12 Why is credit important for farmers in rural area’s?


Farmers need credit to buy seeds, fertilizers pesticides, electricity, equipments,etc.
There is a minimum period of three to four months between the time when the
farmers buy these inputs and when they sell the crop.
Farmers usually take crop loans at the beginning of the season and repay the loan
after harvest.

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