INDIAN SCHOOL NIZWA

Class : X Ch3. MONEY AND CREDIT (Worksheet)

1 Examine any three situations in which credit pushes the borrower into a debt-trap. (CBSE 2019)
Ans. Three situations in which credit pushes the borrower into a debt-trap are
(i) When a borrower sells the agricultural produce to repay a loan but it may not be enough. Then
more credit is taken to repay the entire amount which pushes the borrower into debt-trap
(ii) When borrowers depend on informal sources of credit who charge a high rate of interest. This
increases the repayment amount and new loans have to be taken to repay the earlier ones.
(iii) In high risk situations, for example, farmers taking credit before sowing of crops. If harvest fails then
fresh loans are taken to repay the existing loans leading to debt-trap
2 Explain the three important terms of credit. (CBSE 2019)
Ans. Terms of credit is a set of conditions under which a loan is given. Three important terms of credit
are
(i) Collateral: A borrower has to offer a collateral to the lender. It is a security to use as a guarantee
till the loan is paid such as land title, bank deposits, livestock, house, factory etc.
(ii) Rate of Interest: It is the proportion of amount at which the lender lends money to the borrower.
The rate at which loan is given is decided by the RBI.
(iii) Time Period:It is duration of the loan till which the amount will be repaid along with interest.
3. Why do lenders ask for collateral while lending? Explain. (CBSE 2020)
Ans. The lenders ask for collateral before lending because it is an asset that the borrower owns and uses
this as a guarantee to the lender, until the loan is repaid. A collateral is an asset such as land, building,
livestock, vehicle or deposits with banks that the borrower owns and uses this as a guarantee to the
lender until the loan is repaid.
Collateral with the lender acts as a proof that the borrower will return the money. By keeping a
collateral with the lender the borrower is bound to be regular in paying the interest because the
borrower does not want to lose the collateral. In case of default i.e. borrower is unable to pay the loan,
the lender has the right to sell the collateral or use it.

4 Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
Ans. Cheap and affordable credit is important for the country’s development because
(i) More lending would lead to higher income and encourage people to invest in agriculture, engage in
business and set up small scale industries.
(ii) Cheap credit will allow weaker sections of society to get rid of the exploitation at the hands of money
lenders and come out of debt trap.
(iii) Affordable credit would lead to sustainable economic activity that would allow borrowers to invest
in better technology to make their business more competitive.

5 Explain any three reasons for the banks and cooperative societies to increase their lending facilities in
rural areas. (CBSE 2019)
Ans. Banks and cooperatives are needed to increase their lending facilities in rural areas because
(i) People in rural areas take credit from moneylenders and traders who charge very high rate of
interest. These people must be aware about the role of banks and cooperatives so that they can be
provided with cheap credit facilities.

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 (ii)Rural people are exploited by using unfair means thus, leading them to debt traps. To reduce the
dependence of informal sector in rural areas, there is need for setting up of more banks.
(iii)Formal sources of credit provide cheap and affordable credit in rural areas without any undue
exploitation. This will help the people to start their small business or trade in some goods.

6 Why do most of the rural households still remain dependent on the informal sources of credit? (sample
paper 2022)
Ans: Limited availability of Banks in rural areas.
• People in the rural areas face problem with regard to documentation.
• Absence of collateral is one of the major reasons which prevents the poor from getting bank
loans.
• Rural people get easy loans from the richer households through informal ways.

7 How do Self Help Groups help borrowers to overcome the problem of lack of collateral? Explain. (sample
paper - 2022)
• Ans: People can get timely loans for a variety of purposes and at a reasonable interest rate.
• SHGs are regular in their savings which can be used as monetary help.
• Members can take small loans without collateral to meet their needs.
• Due to timely repayment banks also lend loans to SHGs.

8 State the role of Reserve Bank of India.

Ans: (i) In India, the Reserve Bank of India issues currency notes on behalf of the Central Government.
(ii)The RBI supervises the functioning of formal sources of loans.
(iii)The RBI monitors the banks in actually maintaining cash balance.
(iv)The RBI sees that the banks give loans not just to profit-making businesses and traders but also to
small cultivators.

9 How is money used in everyday life? Explain with examples.

Ans. In modern times, money is used as a medium of exchange because it has been authorized by the
government as a currency. In everyday lives, we use money
(i)To buy goods and services like in the market, money can be used to buy clothes, vegetables etc.
(ii)To deposit in the bank so that money can be saved and used for future use , for example if a labourer
deposits his monthly salary in his bank account, then, he can use it in installments during the entire
month
(iii)as a store value. For instance, we cannot store perishable goods like milk, vegetables, etc . to
exchange goods in the future. however, we can buy precious metals like gold and save it for future.

10 Explain with examples how people are involved with the banks.
Ans. We know that banks accept deposits from the people who have surplus money and also pay
interest on the deposits. but banks keep only a small portion (15 percent) of their deposits as cash with
themselves .This is kept as a provision to pay the depositors who might come to withdraw the money
from their accounts in the bank on any day. They used the major portion of the deposits to extend loans
to those who need money. In this way, banks mediate between those who have surplus money and
those who need money

11 How is money transferred from one bank account to another bank account? Explain with an example.
Ans. Money transfer from one bank account to another bank account: if a person has to make a
payment to his or her friend and writes a cheque for a specific amount, this means that the person

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 instructs his bank to pay this amount to his friend. His friend took this check and deposited it in his
account in the bank. This said amount is transferred from one bank account to another bank account.
12 "The rupee is widely accepted as a medium of exchange". Explain.
Ans. The rupee is widely accepted as a medium of exchange because:
(i)The currency is authorized by the government of the country.
(ii) In India the Reserve Bank of India issues currency notes on behalf of the central government.
(iii)The law legalises the use of rupee as a medium of payment that cannot be refused in settling
transactions in India.
(iv) No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely
accepted as a medium of exchange.

13 What are demand deposits? Explain any three features of it?

Ans. People save their money in banks by opening an account. The deposits in the bank accounts can be
withdrawn on demand, so these deposits are called demand deposits.
(i)Banks accept the deposits and also pay an interest rate on the deposits. In this way, people's money is
safe with the banks and it also earns interest
(ii) The facility of cheques against demand deposits makes it possible to directly settle payments
without the use of cash. Since demand deposits are accepted widely as a means of payment, along with
currency they constitute money in the modern economy.
(iii) It is authorized by the government of the country.
14 Why are service conditions of formal sector loans better than informal sector ? Explain.
Ans. Service conditions provided by formal sector loans are better than informal sector loans because
● Formal sources of credit provide cheap and affordable credit without any undue exploitation.
People in rural areas take credit from moneylenders and traders (informal source) who charge very high
rate of interest.
● Informal sector exploit the borrowers leading to debt trap.
● Formal sector is mainly supervised by the Reserve Bank of India. So every clause is in writing and clear
to comprehend. Whereas, no external organization supervises informal sector. So there is no such
written clause.
15 Explain any three reasons for the banks and cooperative societies to increase their lending facilities in
rural areas. (CBSE 2019)
Ans. Banks and cooperatives are needed to increase their lending facilities in rural areas because (i)
People in rural areas take credit from moneylenders and traders who charge very high rate of interest.
These people must be aware about the role of banks and cooperatives so that they can be provided by
cheap credit facilities. (ii) Rural people are exploited by using unfair means thus, leading them to debt
traps. To reduce the dependence on informal sector in rural areas, there is need for setting up of more
banks. (iii)Formal sources of credit provide cheap and affordable credit in rural areas without any undue
exploitation. These formal sources will serve as a building block for rural households. This will help the
people to start up their small business or trade in certain goods.
16 What are the modern forms of money? Why is the ‘rupee’ accepted as a medium of? Explain 2 reasons.
Ans: i)Paper currency
ii) coins
iii) Demand deposits
iv) cheques
The rupee is accepted as a medium of exchange in the following ways –
a)It is accepted as a medium of exchange because the currency is authorized by the government of the
country (India)
b)In India, the RBI issues currency notes on behalf of the Central Government

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17 How is money used in everyday life? Explain with examples.
Ans. In everyday lives, we use money:
i) To buy goods and services like in market, money can be used to buy clothes, vegetables etc.
ii)To deposit in banks so that money can be saved and used in future use.
iii)As a store of value. For instance, we cannot store perishable goods like milk, bread, grain etc. to
exchange goods in future. However, we can buy precious metals like gold and save it for future use.

18 ‘The rupee is widely used as a medium of exchange’. Explain.

Ans: The rupee is widely used as a medium of exchange because
i)The currency is authorized by the government of the country.
ii)In India, the RBI issues currency notes on behalf of the Central Government.
iii)The law legalizes the use of rupee as a medium of payment that cannot be refused in settling
transactions in India.
iv)No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely
accepted as a medium of exchange.
19 Explain any three loan activities of banks in India.
Ans: The three loan activities of the banks are:
a. People have extra cash with them. Those having extra cash open a bank account in
their name and deposit the surplus money there.
b. 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.
c. Rest of the amount is used to extend loan to the borrowers.
20 Describe the utility of Cheque.
Ans: a. A Cheque is a paper that instructs the bank to pay a specific amount from the account
holder’s account to the person in whose name the Cheque has been issued.
b. Demand deposits are accepted as a means of payment because the depositors get the
facility of Cheque against it, which is used to settle the transaction without the use of
money.
c. It is easy to carry and settle payment
21 “The credit activities of the informal sector should be discouraged.” Support the
statement with arguments. (Delhi 2016)
It is true to say that the credit activities of the informal sector should be discouraged. It is due
to the following reasons:
a. They charge high rate of interest in comparison to that of formal sector.
b. Thus the cost of borrowing is high.
c. Due to high cost of borrowing, the borrowers have to repay more and they will have less
saving, which will hinder individual economic development and ultimately will affect the
country’s economic development.
22 Who was the founder of Grameen Bank? Write any three features of Grameen Bank of Bangladesh.
Prof.Muhammad Yunus was the founder of Grameen Bank.
Features of Grameen bank of Bangladesh.
1. Grameen bank of Bangladesh is one of the biggest success stories in reaching the poor to
meet their credit needs at reasonable rates
2. Started in 1970s as a small project, but now has over six million borrowers in about 40,000
villages spread across Bangladesh.
3. Almost all of the borrowers are women and belong to poorest sections of the society.

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