economics - money and credit

Class 10 - Economics

Money and Credit

Q&A
Question:

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.

Answer:

80 % of farmers in India are small farmers. As they are dependent on rain , which sometimes fails resulting in crop failure , the farmers are in debt. To over come this situation farmers need to get credit on low interest rates.
(a) Bank loans require proper documents and collateral. Absence of collateral is one of the major reasons why the banks are not willing to lend to small farmers.
(b) Farmers sometimes borrow loans from traders and money lenders. These informal sources of credit are a burden for the farmers as the rate of interest is very high.
(c) When the cultivation of any crop is dependent on rain , a natural resource, then cultivation is risky. If rains fail there is crop failure, then credit at a high interest rate, pushes the person into a debt-trap. To repay the loan the farmer has to sell his assets. Then he is much worse off than before. Whether credit would be useful or not, therefore, depends on the risks in the situation.
(d) Banks and cooperative societies need to lend more to the underprivileged so that they could grow crops, do business, set up small-scale industries etc. Farmers can also get loan from SHGs.



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Questions and Answers


Money and Credit - Questions
1.

Write a short note on ˜cheques'.


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2.

What is a cheque?


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3.

What were the objects that were used before the use of currency?


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4.

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


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5.

What is the barter system and double coincidence of wants?


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6.

What are ˜demand deposits'?


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7.

Analyse the role of credit for development.


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8.

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


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9.

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.


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10.

What is Collateral ?


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11.

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


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12.

What are the transactions involving money ?


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13.

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


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14.

How do cooperatives function?


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15.

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


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16.

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.


Answer
17.

What are Demand Deposits?


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18.

What is called the ˜terms of deposit' ?


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19.

Look at a 10 rupee note. What is written on top? Can you explain this statement?


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20.

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


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21.

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


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22.

Write about the functioning of Krishak Cooperative society.


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23.

Cheap and affordable credit is crucial for the countries development . Discuss.


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24.

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


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