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MONEY AND CREDIT – PREVIOUS YEAR QUESTIONS FROM CBSE EXAMS
Q.1. Explain the values which a borrower
should observe for the proper use of loan taken. [CBSE 2018]
Ans.
A borrower,
firstly, needs to be financially independent as well as capable of repayment of
a loan taken for various economic activities such as business set up,
agricultural needs or household purposes.
The proper
utilisation of a loan is essential for repayment of loan because only
successful use of the loan can help the borrower in generating profit i.e. the
required amount of money for repayment or he may fall into a debt trap.
The ability
to manage the amount of money taken as a loan is a very important attribute.
The borrower needs to invest the money in a manner whereby he has sufficient
part of it to buy equipment and other things as well as surplus amount (profit)
in order to establish himself and also contribute towards the country’s wider
development aspect.
NOTE:
Credit (loan) refers to an agreement in which the lender supplies the borrower
with money, goods or services in return for the promise of future repayment. It
is very essential for a borrower to be financially independent in order to
repay a loan. The proper use of a loan can be ensured through the various
efforts put in by the borrower in bringing up the desired results.
Q.2. How
is money transferred from one bank to another bank account?
Or
Describe
how cheque payments are made and realised.
[CBSE 2016]
Ans.
The cheques
have a particular number. A specific amount of money from a person's account to
the person in whose name the cheque has been issued is deposited or withdrawn.
The drawer
has a transaction banking account where their money is held.
The drawer
writes the various details including the monetary amount, date, and a payee on
the cheque, and for which a signature is required ordering their bank, known as
the drawee, to pay that person or company the amount of money stated.
During the
process of Clearance clearance, the bank makes payment for such cheque. This
process of bank is referred to as payment of cheque.
Q.3. What is the basic feature of double coincidence of wants? In which system is it practised? [CBSE 2015]
Ans. Basic feature is that both parties agree to sell and buy each other’s commodities. What a person desires to sell is exactly what the other wishes to buy. It is practised in Barter system.
Q.4.
What is meaning of Barter system? Why is double coincidence of wants an
essential feature of a Barter system? [CBSE 2015]
Ans. Barter
system goods can be exchanged against good and there is no involvement of money
in such system. Barter system is old & out dated system and currently there
is no effective existence of this system.
Features of
barter system are as follow:
Barter
system is direct exchange of goods and services.
It requires
the double coincidence of wants.
Barter
system eliminates the use of money.
It
generally flourishes among uncivilized and backward communities.
Barter
system is possible where the area of exchange is limited.
It is
possible only if the wants of members of a community are very limited.
Q.5. Why
is it necessary that banks and cooperatives increase their lending in rural
areas? Explain.
[CBSE 2018]
Ans.
It will
increase the income of poor farmers.
It will
reduce the dependence of the rural people on moneylenders and traders, i.e.,
the informal sources of credit.
The poor
rural people will not fall in debt trap because they could borrow on easy
terms.
It will
improve the standard of living of rural people.
The
improvement in the conditions of rural people will help in the overall
development of the country as they will set up small scale industries and grow
more crops.
Q.6.
Describe the pattern of formal and informal sources of credit in urban areas. Why
do we need to expand formal sources of credit?
Or
The
credit activities of informal sector should be discouraged. Support the
statement. [CBSE 2018]
Ans: The
credit activities of the informal sector should be discouraged because:
85% of
loans taken by the poor households in the urban areas are from informal
sources.
Informal
lenders charge very high interest on their loans.
They try to
charge more and more interest on their loans.
There are
no boundaries and restrictions.
Higher cost
of borrowing means a larger part of the earnings of the borrowers is used to
repay the loan.
In certain
cases, the high-interest rate for borrowing can mean that the amount to be
repaid is greater than the income of the borrower.
This could
lead to increasing debt and debt trap, therefore the credit activities of the
informal sector should be discouraged.
Q.7.
Deposits in the banks are beneficial to the depositors as well as to nation. [CBSE 2016]
Ans.
(a) To
Depositors
Banks
accept the deposit and pay as interest rate on the deposits.
Money is
safe with the bank.
People
(depositors) may withdraw the money as and when they require.
Depositors
may make payments through cheques instead of cash.
(b) To the
Nation
Banks use
the major portion of the deposits to extend loans.
There is
huge demand for loans for various economic activities. Banks make use of the
deposits to meet the loan requirements of the people.
Question 8.
The currency notes on behalf of the Central Government are issued by whom?
(2011 D)
Answer:
Reserve Bank of India.
Question 9.
Why do banks ask for collateral while giving credit to a borrower?
(2014 D, 2011 OD)
Answer:
Collateral is an asset that the borrower owns (land, building, vehicle,
livestock, land documents, deposits with banks, etc.) which stands as a
security against the money borrowed. In case the borrower fails to repay the
loan, the lender has the right to sell the asset or collateral.
Question 10.
What do banks do with the deposits they accept from customers? (2012
D)
Answer:
Banks use a major portion of deposits to extend loans to people.
Question 4.
What comprises ‘terms of credit’? (2012 OD)
Answer:
Interest rate, collateral and documentation requirement and mode of repayment
together comprise terms of credit.
Question 5.
What is the main informal source of credit for rural households in India?
(2013 D)
Answer:
Money lenders are the main source of informal credit for rural households.
Question 6.
Which body supervises the functioning of formal sources of loans?
(2013 OD)
Answer:
Reserve Bank of India.
Question 7.
‘Modern currency is without any use of its own’; then why is it accepted as a
medium of exchange? (2014 OD)
Answer:
Modern currency is accepted as a medium of exchange because it is certified for
a particular denomination (?10, ?100, etc.) of the country by authorities set
up by the Central Government. It is issued by the Reserve Bank of India and it
can be used for buying any commodity which is on sale. It is authorized by the
government of the country.
Question 8.
What is the meaning of ‘barter system’? (2015
D)
Answer:
Barter system refers to the system of exchange of goods and services. It is the
system by which one commodity is exchanged for another without the use of
money. Before money was introduced, people practised barter system.
Example: A farmer could buy a dhoti from a weaver or a pair of shoes from a
cobbler in exchange of grains he produced.
Question 9.
What is the meaning of ‘investment’? (2015
D)
Answer:
Investment is buying of an asset in the form of a factory, a machine, land and
building, etc. (physical assets) or shares (monetary assets) for the purpose of
making or sharing profits of the enterprises concerned.
Common investments are—buying land, factories, machines for faster production,
buying small local companies to expand production, cheap labour, skilled
engineers, IT personnel, etc.
Question 10.
What is meant by double coincidence of wants? (2015
OD)
Answer:
Double coincidence of wants means when both parties have agreed to sell and buy
each other’s commodities.
Question 11.
How does money act as a medium of exchange? (2015
OD)
Answer:
Money acts as a medium of exchange as it acts as an intermediate in the
exchange process and transactions. A person holding money can easily exchange
it for any commodity or services that he or she might want.
Question 12.
How do the deposits with banks become their source of income?
(2016 D)
Answer:
Banks charge a higher interest rate on loans they extend than what they offer
on deposits. The difference of interest is the main source of income of banks.
Question 13.
Why one cannot refuse a payment made in rupees in India?
(2016 D)
Answer:
One cannot refuse a payment made in rupees in India because it is accepted as a
medium of exchange. The currency is authorized by the government of the
country.
Question 14.
Compare formal sector loans with informal sector of loans regarding interest
only. (2016 D)
Answer:
Most of the informal lenders charge a much higher interest on loans than the
formal sector loAnswer:
Question 15.
Why is the supervision of the functioning of formal sources of loans necessary?
(2016 OD)
Answer:
Supervision of the functioning of formal sources of loans is necessary because
banks have to submit information to the RBI on how much they are lending, to
whom they are lending and at what interest rate etc.
Question 16.
Prove with an argument that there is a great need to expand formal sources of
credit in rural India. (2016 OD)
Answer:
There is great need to expand formal sources of credit in rural India because:
2. No one can stop rural money-lenders from using unfair means to get their money back.
Question 20.
Highlight the inherent problem in double coincidence of wants.
(2017 D)
Answer:
Double coincidence of wants means that when someone wants to exchange his goods
with another person, the latter must also be willing to exchange his goods with
the first person. It can only work when both the persons are ready to exchange
each other’s goods.
Question 21.
How does the use of money make it easier to exchange things? Give an example.
(2017 OD)
Answer:
The use of money solves the problem of double coincidence of wants. Money acts
as a medium of exchange and serves as a unit of value.
Short Answer Questions (SA) 3 Marks
Question 22.
What is money? Why is modern money currency accepted as a medium of exchange?
(2012 D)
Answer:
Money is a medium of exchange in transactions. A person holding money can
easily exchange it for any commodity or service that he or she might want.
Modem money currency is accepted as a medium of exchange because
· it is issued by the Central Bank of the country.
· it is authorized by the government of the country.
Question 23.
What are the modern forms of money? Why is the ‘rupee’ widely accepted as a
medium of exchange? Explain two reasons. (2013 D)
Or
Why is modern currency accepted as a medium of exchange without any use of its
own? Give reasons?
Answer:
Modem forms of money currency in India include paper notes and coins which are
known as Rupees and Paise.
2. In India, the Reserve bank of India issues currency notes on behalf of the Central Government of India.
3. The law legalizes the use of rupee as a medium of payment that cannot be refused in settling transaction in India.
4. No Individual in India can legally refuse a payment made in rupees.
Therefore, the rupee is widely accepted as a medium of exchange.
Question 24.
What is collateral? Why do lenders ask for collateral while lending? Explain.
(2012)
Answer:
Collateral is an asset that the borrower owns (land, building, vehicle,
livestock, land documents, deposits with banks etc.) which stands as a security
against the money borrowed. In case the borrower fails to repay the loan, the
lender has the right to sell the asset or collateral to recover the loan money.
Most lenders ask for collateral while lending as a security against their own
funds.
Question 25.
“Cheap and affordable credit is essential for poor households both in rural and
urban areas.” In the light of the above statement explain the social and
economic values attached to it. (2013 OD)
Or
“Cheap and affordable credit is crucial for the country’s development.” Assess
the statement. (2016 D)
Or
‘Credit has its own unique role for development’. Justify the statement with
arguments. (2016 OD)
Answer:
Credit means loan: It refers to an agreement in which the lender supplies
the borrower with money, goods or services in return for the promise of future
repayment.
1. Cheap and affordable credit is crucial for the country’s growth and economic development. Credit is in great demand for various kinds of economic activities—big or small investments, to set up business, buying cars, houses, etc.
2. In rural areas credit helps in the development of agriculture by providing funds to farmers to buy seeds, fertilizers, expensive pesticides.
3. Manufacturers need credit for buying raw material or to meet ongoing expenditure of production. Credit helps in the purchase of plant, machinery, equipment, etc.
4. Some people may need to borrow for illness, marriages etc.
Question 26.
How does money solve the problem of double coincidence of wants? Explain with
an example. (2014 D)
Answer:
Money acts as a medium of exchange. Money can be exchanged for any kind of
commodity or service of one’s choice or need. Before money was introduced,
people practised barter system. They exchanged goods with each other.
Example, A farmer could buy a dhoti from a weaver or a pair of shoes from a
cobbler in exchange of grains he produced.
The problem with the barter system was that both
the parties had to agree to sell and buy each other’s product. This is known as
double coincidence of wants.
In barter system, where goods are directly
exchanged without the use of money, it is essential that there is a double
coincidence. Double coincidence is a situation where two persons need or desire
to have each other’s product.
Money solves this problem as with money we can buy
whatever we want and whenever we want, without having to exchange something in
return.
Question 27.
How is money used in everyday life? Explain with examples.
(2014 D)
Answer:
2. Money buys us food, clothing, shelter and other basic necessities of life.
3. Money provides us social security. It is needed to procure services like transport, education, healthcare, entertainment, recreation, and so on. Money facilitates business and trade and is the basis of the working of an economy.
Question 28.
Explain with examples, how people are involved with the banks.
(2014 D)
Answer:
2. People can withdraw the money deposited with the bank at the time of their need. As the money can be withdrawn on demand, these are called demand deposits.
3. Banks also grant loans to people for a variety of purposes. In times of need individuals, business houses and industries can borrow money from the banks.
Question 29.
Why is it necessary for the banks and cooperative societies to increase their
lending facilities in rural areas? Explain. (2015
D)
Answer:
Banks and Cooperatives can help people in obtaining cheap and affordable loans.
This will help people to grow crops, do business, set up small-scale industries
or trade in goods and also help indirectly in the country’s development. They should
do so, so that relatively poor people do not have to depend on informal sources
of credit (money-lenders).
Question 30.
How can money be easily exchanged for goods or services? Give an example to
explain. (2016 D)
Answer:
Money as a medium of exchange for goods and services:
A person holding money can easily exchange it for any commodity or service that
he or she might want. Everyone prefers to receive payments in money and
exchange the money for things they want.
For example: A shoemaker wants to sell shoes in the
market and buy wheat. The shoe maker will first exchange shoes for money and
then exchange the money for wheat. If the shoemaker had to directly exchange
shoes for wheat without the use of money, he would have to look for a wheat
growing farmer who not only wants to sell wheat but also wants to buy the shoes
in exchange. Both the parties have to agree to sell and buy each other’s
commodities. This process is very difficult, time consuming and unhealthy.
Question 31.
“The credit activities of the informal sector should be discouraged.” Support
the statement with arguments. (2016
D)
Answer:
The credit activities of the informal sector should be discouraged because:
1. 85% of loans taken by the poor households in the urban areas are from informal sources. There is no organisation that supervises the credit activities of lenders in the informal sector.
2. Informal lenders charge very high interest on their loan : They try to charge more and more interest on their loans as there are no boundaries and restrictions.
3. Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
4. In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of borrower. This could lead to increasing debt and debt trap, therefore the credit activities of the informal sector should be discouraged.
Long Answer
Questions (LA) 5 Marks
Question 33.
What is the basic objective of ‘Self Help Groups’? How do they work?
Describe any four advantages of ‘Self Help Groups’ for the poor. (2015
D, 2011 D)
Answer:
The basic objective of ‘Self Help Groups’ is to organize rural poor,
particularly women belonging to one neighborhood into small Self Help Groups
(15-20 members). These members save regularly and the amount varies from
₹25-100 or more depending upon their ability to save.
The four advantages of ‘Self Help Groups’ are as follows:
1. The members can take small loans from the group itself to meet their needs. The group charges interest on these loans which is still less than what moneylenders charge.
2. After a year or two, if the group is regular in savings, it becomes eligible for availing loan from the bank which is sanctioned in the name of the group to create self employment opportunities. All important decisions regarding loan, purpose, amount of interest, non-payment of loan are taken by the group members.
For instance, small loans are provided to the members for releasing mortgaged land, meeting working capital needs, for acquiring assets like sewing machines, handlooms, cattle etc.
3. Since non-repayment of loans is dealt with seriously by group members, therefore banks are willing to lend to the poor women when organized in SHGs, even though they have no collateral as such. Thus, the SHGs help women to become financially self reliant.
4. The regular meetings of the group provide a platform to discuss and act on a variety of social issues such as health, nutrition, domestic violence etc.
Question 34.
‘Banks and cooperatives help people in obtaining cheap and affordable loans’
Which values according to you does this support?
(2011 OD)
Answer:
Cheap and affordable loans help people to grow crops, do business, set up small
scale industries or trade in goods.
This promotes:
2. Protection of the relatively poor against corrupt moneylenders.
3. Eradication of poverty in general.
4. All this indirectly helps in the country’s development.
Question 35.
What is Credit? Why is cheap and affordable credit important for the country’s
development? Give four reasons. (2012 D)
Or
What is credit? Explain with an example, how credit plays a vital and positive
role for development. (2014 OD)
Answer:
Credit means loans. It refers to an agreement in which the lender supplies the
borrower with money, goods or services in return for the promise of future
repayment.
2. In rural areas credit helps in the development of agriculture by providing funds to farmers to buy seeds, fertilizers, expensive pesticides.
3. Manufacturers need credit for buying raw material or to meet ongoing expenditure of production. Credit helps in the purchase of plant, machinery, equipment, etc.
4. Some people may need to borrow for illness, marriages etc.
Thus, cheap and affordable credit is crucial for the country’s growth and economic development.
Question 36.
What are the two categories of sources of credit? Mention four features of
each. (2013 OD)
Answer:
The two sources of credit are formal sources and informal sources:
Formal sources of credit:
2. The Reserve Bank of India supervises the functioning of formal sources of loAnswer:
3. Bank loans require documentation and collateral (collateral is an asset such as land, building, vehicle, livestock, deposits with the bank, etc.). This is used as a guarantee to the lender until the loan is paid back.
4. Formal sources cannot charge any rate of interest from the borrowers according to their whims.
Informal sources of credit:
· In the informal sector money can be borrowed from a person, friend, relative, moneylender, traders, employers, etc.
· There is no organization that checks or supervises the activities of lenders in the informal sector.
· Loans from informal sources do not require any such collateral.
· They charge a very high rate of interest on loans as they do not require any collateral.
Question 37.
Which government body supervises the functioning of formal sources of loans in
India? Explain its functioning. (2012
OD)
Answer:
The Reserve Bank of India supervises the functioning of formal sources of
loans.
Functions of Reserve Bank of India.
2. RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small-scale industries, small borrowers, SHGs, etc.
3. RBI issues guidelines for fixing rate of interest on deposits and lending by commercial banks.
4. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
Question 38.
What are the various sources of credit in rural areas? Which one of them is the
most dominant source of credit and why? (2013
D)
Answer:
Moneylenders are the most dominant amongst sources of credit for rural
households. They constitute an informal source of credit. They charge a very
high rate of interest on loans as they do not require any collateral. They are
the most convenient source of credit in the rural areas.
Other sources of rural credit:
2. Agricultural traders, relatives and friends are other informal sources of rural credit. Some farmers borrow from agricultural traders who supply the farm inputs (such as seeds, fertilizers, pesticides, etc.) on credit at the beginning of the cropping season and repay the loans after the harvest.
3. Commercial banks also give loans to rural households. However, not many rural households borrow from banks as they require proper documentation and collateral.
Question 39.
“Deposits with the banks are beneficial to the depositors as well as to the
nation”. Examine the statement. (2016
OD, 2015 D)
Answer:
Benefit of deposits to the depositors:
2. Banks help people save their money and keep their money in safe custody of the bank.
3. People can withdraw the money as and when they require.
4. Banks also grant loans to people for a variety of purposes. In times of need, individuals, business houses and industries can borrow money from the banks.
Benefit of deposits to the Nation:
1.
Banks use the major proportion of the
deposit to extend loans.
2.
There is a huge demand for loans for
various economic activities. In times of need, business houses and industries
can borrow money from the banks.
3.
Banks mediate between those who have
surplus funds and those who are in need of these funds. Thus, it helps in the
economic development of the Nation.
Question 40.
How do banks play an important role in the economy of India? Explain.
(2015 OD)
Answer:
Question 41.
Describe the vital and positive role of credit with examples.
(2016 D)
Answer:
In the festive season, a shoe manufacturer, Ram receives an order from a large
trader in town for 3,000 pairs of shoes to be delivered in a month’s time. To
complete production on time Ram has to hire workers for stitching and pasting
work. He has to purchase the raw materials. To meet these expenses Ram obtains
loans from two sources.
First, he asks the leather supplier to supply
leather now and promises to pay him later.
Second, he obtains loan in cash from the large
traders as advance payment for 1000 pairs of shoes with a promise to deliver
the whole order by the end of the month.
At the end of the month, Salim is able to deliver
the order, make a good profit and repay the money he had borrowed.
Salim obtains credit to meet the working capital
needs of production. The credit helps him to meet the ongoing expenses of
production, complete production on time and thus increase his earnings. Credit
therefore plays a vital and positive role in this situation.
Question 42.
How can the formal sector loans be made beneficial for poor farmers and
workers? Suggest any five measures. (2016
OD)
Answer:
Formal sector loans can be made beneficial for poor farmers and workers in the
following ways:
1. Create greater awareness among farmers about formal sector loans.
2. Process of providing loans should be made easier. It should be simple, fast and timely.
3. More number of Nationalized Banks/cooperative banks should be opened in rural sectors. Banks and cooperatives should increase facility of providing loans so that dependence on informal sources of credit reduces.
4. The benefits of loans should be extended to poor farmers and small scale industries.
5. While formal sector loans need to expand, it is also necessary that everyone receives these loans. It is important that formal credit is distributed more equally so that the poor can benefit from cheaper loans.
