What is the barter system and double coincidence of wants?
In the olden days, when modern currency was not in vogue, people had to sell and buy each others commodities. This was called the barter system. For instance if a shoe manufacturer wants to buy wheat, he has to find a farmer who wants to buy his shoes in exchange for the wheat. That is, both parties have to agree to sell and buy each others commodities. This is known as double coincidence of wants. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature.
In situations with high risks, credit might create further problems for the borrower. Explain.
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.
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.
How does money solve the problem of double coincidence of wants? Explain with an example of your own.
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?