Question 1

UNEP has asked all countries to stop the production of CFC ( Chloro Fluoro Carbon) this protocol is called

Accepted Answer

KYOTO

Question 2

Which of the following waste is non – biodegradable:

Accepted Answer

Tin cans

Question 3

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

Accepted Answer

In situations with high risks, credit can create further problems for the borrower because if the borrower's income is uncertain or unstable, they may not be able to repay the loan on time. This can lead to a cycle of debt where the borrower has to take more loans to repay the earlier ones, increasing their financial burden. High risks may arise from factors such as crop failure, illness, or loss of employment, which reduce the borrower's ability to repay. Thus, credit under risky conditions can worsen the borrower's financial situation instead of helping them. — When borrowers face uncertain income or high risks, they may default on loans, leading to increased debt and financial stress. This is because the inability to repay can force them to borrow more at higher interest rates, creating a debt trap.

Question 4

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

Accepted Answer

Money solves the problem of double coincidence of wants by acting as a medium of exchange. In a barter system, for a trade to happen, both parties must want what the other has (double coincidence of wants). Money eliminates this problem because it is universally accepted in exchange for goods and services. For example, if a farmer has rice and wants shoes, instead of finding a shoemaker who wants rice, the farmer can sell rice for money and then use that money to buy shoes from any shoemaker. — Money acts as a common medium that everyone accepts, so people do not need to find someone who wants exactly what they have. This simplifies and facilitates trade.

Question 5

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

Accepted Answer

Banks mediate between those who have surplus money (depositors) and those who need money (borrowers) by accepting deposits from the former and lending loans to the latter. They pool the savings of many individuals and provide credit to businesses, farmers, and others who require funds for investment or consumption. Banks charge interest on loans and pay interest on deposits, thus facilitating the flow of money in the economy and promoting economic activity. — Banks act as intermediaries by collecting savings and providing credit, which helps in efficient allocation of resources and supports economic growth.

Question 6

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

Accepted Answer

On the top of a 10 rupee note, it is written: 'Reserve Bank of India promises to pay the bearer the sum of ten rupees.' This statement means that the Reserve Bank of India guarantees the value of the note and promises to pay the amount mentioned to whoever holds the note. It signifies that the currency note is a legal tender and is backed by the government, ensuring trust and acceptance in transactions. — The promise on the note assures the holder that the note can be exchanged for its value, which is why it is accepted as money in the economy.

Question 7

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

Accepted Answer

We need to expand formal sources of credit in India because formal sources like banks and cooperatives provide loans at lower interest rates and with fairer terms compared to informal sources such as moneylenders. Formal credit helps reduce the exploitation of borrowers, especially small farmers and poor people, who often pay very high interest rates to informal lenders. Expanding formal credit also promotes financial inclusion, supports economic development, and helps borrowers invest productively. — Formal credit sources are regulated and provide safer, cheaper, and more reliable credit, which is essential for equitable economic growth.

Question 8

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

Accepted Answer

The basic idea behind Self Help Groups (SHGs) for the poor is to enable poor people to come together, save money collectively, and provide loans to each other at reasonable interest rates. SHGs empower members by promoting savings habits and providing access to credit without depending on moneylenders. They also build social capital and mutual support among members, helping them improve their economic conditions. — SHGs work on the principle of mutual help and collective responsibility, which reduces the risk for lenders and helps poor people access credit affordably.

Question 9

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

Accepted Answer

Banks might not be willing to lend to certain borrowers because of reasons such as lack of collateral or security, poor credit history, uncertain or irregular income, small loan amounts which may not be profitable for banks, and high risk of default. Banks also require proper documentation and formal procedures which some borrowers may not be able to fulfill. These factors make banks cautious in lending to certain groups like small farmers, poor people, or informal sector workers. — Banks assess the risk and profitability before lending. If the risk is high or documentation is lacking, they avoid lending to protect their funds.

Question 10

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

Accepted Answer

The Reserve Bank of India (RBI) supervises banks by regulating their operations, ensuring they maintain adequate reserves, monitoring their lending practices, and protecting depositors' interests. RBI issues licenses to banks, inspects their accounts, and enforces banking regulations. This supervision is necessary to maintain the stability and integrity of the banking system, prevent bank failures, and ensure that banks operate in a safe and sound manner to protect public money. — RBI's supervision helps build trust in banks, prevents financial crises, and promotes a healthy financial environment.

Question 11

Analyse the role of credit for development.

Accepted Answer

Credit plays a crucial role in development by providing the necessary funds for investment in agriculture, industry, and services. It enables farmers to buy seeds and equipment, entrepreneurs to start or expand businesses, and households to meet urgent needs. Access to credit helps increase production, generate employment, and improve living standards. Without credit, many development activities would be impossible or limited. — Credit facilitates economic growth by mobilizing resources and enabling productive activities that contribute to overall development.

Question 12

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.

Accepted Answer

Manav will decide to borrow from the bank or the moneylender based on factors such as interest rates, ease of access, collateral requirements, and repayment terms. Banks usually offer lower interest rates but require formal documentation and collateral, which Manav may not have. Moneylenders provide quick and easy loans without much paperwork but charge very high interest rates. If Manav has proper documents and collateral, borrowing from the bank is better. Otherwise, he might have to rely on the moneylender but should be cautious about the high cost. — Choosing the source depends on affordability, accessibility, and the borrower's ability to meet the lender's conditions.

Question 13

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.

Accepted Answer

(a) Banks might be unwilling to lend to small farmers because they often lack proper land titles or collateral, have small loan requirements which may not be profitable for banks, and have uncertain income making repayment risky.

(b) Other sources include moneylenders, traders, relatives, and informal lenders.

(c) For example, a small farmer borrowing from a moneylender may have to pay very high interest rates (e.g., 24% or more) and repay immediately after harvest, which can be financially burdensome.

(d) Small farmers can get cheap credit by forming SHGs, accessing cooperative banks, government schemes providing subsidized loans, and improving documentation to access formal credit. — Banks avoid lending to small farmers due to risk and lack of collateral; informal sources charge high interest; collective action and government support can improve access to cheap credit.

Question 14

Fill in the blanks:
(i) Majority of the credit needs of the _____________ households are met from informal sources.
(ii) _____________ costs of borrowing increase the debt-burden.
(iii) _____________ issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on _____________.
(v) _____________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Accepted Answer

(i) Majority of the credit needs of the **rural** households are met from informal sources.
(ii) **High** costs of borrowing increase the debt-burden.
(iii) **Reserve Bank of India** issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on **deposits**.
(v) **Collateral** is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender. — These blanks are filled based on the concepts of credit sources, borrowing costs, currency issuance, interest rates, and collateral security.

Question 15

Choose the most appropriate answer.
(i) In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.

(ii) Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.

Accepted Answer

(i) (b) Members. In a SHG, members themselves take most decisions regarding savings and loans.
(ii) (c) Employers. Employers are not considered formal sources of credit. — SHGs are member-driven groups; formal credit sources include banks and cooperatives but not employers.

Money and Credit

Money and Credit — Study Notes

MONEY AS A MEDIUM OF EXCHANGE

MODERN FORMS OF MONEY

CHEQUE PAYMENTS

Practice Questions — Money and Credit

All 5 Chapters in Understanding Economic Development