3.3   Additional Questions :

Answer the following questions :

1.  What were used as money by Indians in the early ages?
Ans:
Indians used grains and cattle as money in the early ages.

2.  Name the modern forms of money.
Ans:
The modern forms of money include currency or paper notes and coins.

3.  How do banks mediate between those who have surplus funds and those who are in need of money?
Ans:
Banks make use of the deposits to meet the loan requirements of those people who are in need of money.

4.  Why do lenders ask for collateral while leading?
Ans:
If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payment.

5.  Write any 3 functions of the Reserve Bank of India.
Ans:

i) The Reserve Bank of India issues currency notes on behalf of the central government.
ii) The Reserve Bank of India supervisors the functioning of formal sources of loans.
iii) The Reserve Bank of India sees that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers and so on.

6.  ‘Modern currency is without any use of its own’. Explain how.
Ans:

i) Modern currency is not made of precious metal such as gold, silver and copper.
ii) Unlike grain and cattle, they are not of everyday use.

7.  Why is the rupee accepted as a medium of exchange?
Ans:

i) The law legalizes the use of rupee as a medium of payment that cannot be refused in setting transactions in India.
ii) No individual in India can legally refuse a payment made in rupees.

8.  Why are demand deposits considered as money?
Ans:

i) The facility of giving a cheque against a  demand deposit  makes it possible to directly settle payments without the use of cash.
ii) Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

9.  Mention the terms of credit that every bank specifies to the borrower.
Ans:

i) Every loan agreement specifies an interest rate which the borrower must pay to the lenders along with the repayment of the principal.
ii) The lender may demand collateral against loans.
iii) Documentation requirement, and the mode of repayment is also required.

10.  Why do we need to expand the formal source of credit?
Ans:

i) As compared to formal lenders, informal lenders charge a much higher interest on loans.
ii) Higher rate of borrowing may lead to a debt-trap.
iii) People who might wish to start an enterprise by borrowing, may not do so because of the high rate of borrowing.

11.  What are poor households still dependent on informal sources of credit?
Ans:

i) Banks are not present everywhere in rural India.
ii) Even if they are present, getting a loan from a bank is more difficult then taking loan from informal sources.

12.  Give two points of distinction between formal sources of credit and informal sources of credit.
Ans :

Formal Source of Credit Informal Sources of Credit
i) It includes loans from banks and cooperatives.

 

i) It includes money lenders, traders, employers, Relatives and friends.

 

ii) They charge low rate of interest. ii) They charge a high rate of interest.

 


13.  How does the Reserve Bank of India keep a check on the subordinate banks? Explain giving three points.
Ans:
i) The Reserve Bank of India supervises the functioning of formal sources of loans.
ii) The Reserve Bank of India monitors that the banks actually maintain the cash balance.
iii) The Reserve Bank of India sees that the banks give the loans not just for profit and to traders but also to small cultivators, small scale industries, small borrowers and so on.

14.  ‘Taking loan from informal sectors should be discouraged’. Why?
Ans:

i) There is no organization which supervises the credit activities of lenders in the informal sector.
ii) They can lend at whatever interest rate they choose.
iii) There is no one to stop them using unfair means to get their money back.
iv) Informal lenders charge a much higher rate of interest on loans.

15.  ‘Cheap and affordable Credit is crucial for the country’s development’. Explain why giving three points.
Ans:

i) As compared to the formal lenders most of the informal lenders charge a much higher interest on loans.
ii) High interest rate means a larger part of the earnings of the borrowers is used to repay the loan.
iii) People who might wish to start an enterprise by borrowing , may not do so because of the high rate of borrowing.

16.  Why are banks willing to lend to the poor women when organised in SHG’s, even though they have they have no collateral?
Ans:

i) Most of the important decisions regarding saving and loan activities are taken by SHG members.
ii) The group decides as regards the loans to be granted, the purpose, amount, interest, repayment schedule and so on.
iii) It is the group which is responsible for the repayment of the loan.

17.  ‘SHGs are the building blocks of organization of the rural poor’. Explain why giving three points.
Ans:

i) SHGs help borrowers overcome the problem of lack of collateral.
ii) They can get timely loans for a variety of purposes and at reasonable interest rates.
iii) It helps women to become financially self-reliant.
iv) 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, and so on.

Write the correct answers :

1.  Currency is issued by:

a) RBI on behalf of the central government              b) By the President of India
c) By the Finance Minister                                            d) None of them

2.  Which one of the following takes most of the decisions regarding saving and loan activities in self-help groups?

a) Traders                                                                          b) Money lenders
c) Members                                                                       d) Government of India

3.  Which of the following is a formal source of credit?

a) Money lenders                                                             b) Bank
c) Trader                                                                           d) Friend

Answers :
1.  RBI on behalf of the central government                      2.  Members                           3.  Bank