NCERT Solutions For Money and Credit
1. In situations with high risks, credit might create further problems for the borrower. Explain.
Ans. Another term for this state would be ‘debt-trap’. Whenever a person takes credit, it involves an interest rate on the loan and if it is not paid back, then the borrower is forced to give up his collateral or asset which he/she used as the guarantee, to the lender. For example, credit taken by farmers for cultivation could create problems at some time. Basically, crop production involves high costs on inputs such as HYV seeds, fertilizers, pesticides, irrigation, etc. Mainly loan is taken by a farmer at the beginning of the season and it is repaid after the harvest. But in some cases, failure of the crop results in impossible loan payment conditions. Then, in order to repay the loan sometimes, they become bound to sell part of their lands, making their situation worse than before. There are cases in India, where non repayment of loans leads to farmer’s suicides, example, Maharashtra. Thus, it depends on various factors to conclude whether a credit is useful or not.
Q. 2. How does money solve the problem of double coincidence of wants? Explain with an example of your own.
Ans. Double coincidence of wants is an essential feature, where goods are directly exchanged without the use of money is also ‘known Barter system’. By serving as a medium of exchanges, money removes the need for double coincidence of wants and the difficulties associated with the barter system. For example- a farmer no longer has to look for a shoe maker, who will buy his cereals and at the same time and sells him shoes. All he has to do is find a buyer for his cereals. If he has exchanged his cereals for money, he can purchase any goods or services which he needs to. This is because money acts as a medium of exchange.
Q. 3. How do banks mediate between those who have surplus money and those who need money?
Ans. Banks keep small deposits as cash (15%) for themselves (to pay the deposits on demand). They use 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
Q. 4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Ans. There are two things which are mentioned on top right on a 10 rupee note; ‘Reserve Bank of India’ and ‘Guaranteed by the Government’. Reserve Bank of India issues currency notes on behalf of the central government of India. The statement explains that the currency is authorised or guaranteed by the Central Government. That is, Indian law legalises the use of rupee as a medium of payment that cannot be refused in settling transactions in India.
Q. 5. Why do we need to expand formal sources of credit in India?
Ans. We need to expand formal sources of credit in India:
Q. 6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Q. 7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Ans. The Banks might not be willing to lend certain borrowers due to the following reasons:
Q. 8. In what ways does the Reserve Bank of India supervise the functions of Banks? Why is this necessary?
Ans. The Reserve Bank of India supervises the functions of banks in various ways:
9. Analyse the role of credit for development.
Q10. 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.
Q11. In India, about 80 per cent of farmers are small farmers, who need credit for 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 how the terms of credit can be unfavourable for the small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
Ans. (a) Banks might be unwilling to lend to small farmers because small farmers usually lack proper documents and collateral or asset.
(b) The other sources from which the small farmers can borrow are moneylenders, relatives or friends, self-help groups and cooperative banks.
(c) The terms of credit can be unfavourable for the small farmer if he has a bad crop, and is forced to either surrender his collateral (if he borrowed from a bank) or sell off a part of his land (if he borrowed from the informal sector), in order to repay his loan.