Following are Money and Credit Notes for Class 10 Social Science. These revision notes have been prepared by expert teachers of Class 10 Social Science as per the latest NCERT, CBSE, KVS books released for the current academic year. Students should go through Chapter 3 Money and Credit concepts and notes as these will help you to revise all important topics and help you to score more marks. We have provided Class 10 Social Science notes for all chapters in your book. You can access it all free and download Pdf.

Chapter 3 Money and Credit Notes Class 10 Social Science

Points to Remember:

• When goods are directly exchanged for goods and there is no use of money, it is called Barter System.
• Money is something that can act as a medium of exchange in transaction. It eliminates the need for double coincidence of wants.
• When both parties have to agree to sell and buy each other’s commodities. This is known as the double coincidence of wants.

• Credits refers to an agreement in which the lender supplies the borrower money, goods and services in return for the promise of future repayment.

Credit as an asset:

• During the festival season, a shoe manufacturer Salim has received an order of making shoes in bulk, within one month’s time. To complete this production, he hires extra workers and has to purchase the raw materials. He asks the supplier to supply leather now and, promise to pay him later. Then he takes some advance payment from trader. By the end, of the month, he is able to deliver the order, make a good profit and repay the money he had borrowed.

Credit as a debt trap:

• A farmer swapna picks up loan from a money lender to meet the expenses of cultivation. But unfortunately the crop was hit by the pests and there was crop failure. So, she is unable to repay the loan and debt grows larger with Interest.
• Collateral is asset that the borrower owns (Such as land, building vehicle, livestock) and uses this as a guarantee to a lender until the loan is repaid.

• Self Help Groups: It’s basic idea is to provide financial resources for the poor through organizing the rural poor especially women into Small Help Groups.

Objective Type Questions

Question. Where does the large part of deposits spend by the bank?
(a) For opening new Branches
(b) To pay taxes
(c) To pay interest on loan
(d) To provide loan

Question. Which of the following is not included in the formal source of loan?
(a) Bank
(b) Co-operative Banks
(c) Employer
(d) None of the above

Question. Which Currency is used as medium of exchange mostly at International Level?
(a) American Dollar
(b) Singaporean Dollar
(c) Rupees
(d) Taka

Question. Who is responsible for the establishment of Grameen Bank in Bangladesh?
(a) Wasim Akram
(b) Shoaib
(c) Muhammad Yunus
(d) Shahid Afridi

Question. Which of the following is a symptom of debt Trap?
(a) Unable to repay the loan
(b) Able to repay the loan
(c) Both are correct
(d) Both are wrong

Question. Which of the following can be considered as modern form of Money?
(a) Paper note
(b) Gold Coins
(c) Silver Coins
(d) Copper coins

Question. In India, Which agency is authorize to issue the notes and currency?
(a) NABARD
(b) Reserve Bank of India
(c) World Bank
(d) State Bank of India

Question. How much cash do the bank have with its total cash amount?
(a) 10%
(b) 20%
(c) 15%
(d) 30%

Question. Which of the following is not an example of Collateral?
(a) Jewelry
(b) House
(c) Agricultural Land
(d) None of the above

Question. Who takes the major decision regarding savings and loans in SHG’s?
(a) Bank
(b) Government
(c) Members
(d) NGOs

Question. Bharti has a doubt that why one cannot refuse a payment made in rupees in India?

Question. Suppose you are living in ancient times, when money is not accepted as medium of transaction. What kind of problem you will find while purchasing and selling the things?

Question. Give one example each of modern currency and older currency?

Question. Why a loan from Informal Sector is costlier than the formal sector?

Question. What was the primitive methods of exchange in early ages in India?

Question. Which government agency is authorized to issue notes and currency in India?

Long Answer Type Questions

Question. Why the formal or informal sector does asks for collateral?
Answer : Lenders may demand collateral or an asset that the borrower owns to use it as a guarantee until he repays the loan. It may be sold if the borrower is not able repaid.

Question. What are the terms of credit? How it may vary for person to person?
Answer : • Every loan agreement specifies an interest rate which the borrower must pay to the lender along with repayment of the principal.
• In addition, lender may demand collateral, i.e., as assert that the borrower owns and uses this as a guarantee until the loan is repaid.
• If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payment.
• Terms of credit comprise interest rate, collateral and documentation requirement, and the mode of repayment.

Question. Analyse the work of Reserve Bank of India?
Answer : • Issue the currency on behalf of Government of India.
• Issues guidelines regarding working culture of Bank and SHG.
• Give directions regarding terms and interest on credits.
• To provide feedback regarding monetary policies to government of India.
• RBI holds a part of the cash reserve of the bank.

Question. What is credit? How can credit be both an asset as well as a debt trap?
Answer : Credits refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

• Credit as an asset: During the festival season, a shoe manufacturer Salim has received an order of making shoes in bulk, within a month’s time. To complete production, he hired extra workers and has to purchase the raw materials. He asks the supplier to supply leather now and, promise to pay him later. Then he took some advance payment from the trader. By the end, of the month, he is able to deliver the order, make a good profit and repay the money he had borrowed.

• Credit as debt trap: A farmer Swapna picks up loan from a moneylender to meet the expenses of cultivation. But unfortunately the crop is hit by the pests and fails. So, she is unable to repay the loan and debt grows larger with interest.

In Salim’s case credit plays a vital and positive role, whereas in Swapna’s case credit pushes the borrowers into a situation from which recovery is painful.

Question. How do formal and informal sources of credit differ from each other?
Answer :

Question. How is the concept of Self Help Group important for poor people? Give your view points.
Answer : • SHG’s basic idea is to provide financial resource for the poor through organizing the rural poor especially women, into small Help Groups.
• It organizes the rural poor, especially women, into small Self Help Groups.
• It collects saving of the members.
• it provides loans without collateral.
• It provides timely loans at reasonable rate of interest.
• It also provides a platform to discuss various social issue.

Question. Review any three merits and any two demerits of ‘formal sector of credits’ in India.
Answer : Merits
• Helps to meet the working capital needs of production.
• Helps in completing production on time.
• Low interest rate.
• Helps in increasing earnings.

Demerits
• Difficulty in obtaining loans.
• Collateral issues.
• Documentation could be a problematic issue for few.

Question. What are the reasons why the banks might not be willing to lend to certain borrowers?
Answer : • Banks require proper and legal documentations and collateral as security against loans. The borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
• Those entrepreneurs, who are going to invest in a business with high risks, the might not be willing to lend money.

Question. The credit activities of the informal sector should be discouraged. Support your statement with relevant arguments.
Answer : • Informal lenders charge very high interest on their loans.
• There are no boundaries and restrictions.
• In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrowers.
• This could lead to increasing debt trap, therefore the credit activities of the informal sector should be discouraged.

Question. How do farmers gets into debts trap?
Answer : • Failure of the crop makes loan repayment impossible.
• Downfall of crop prices also makes loan repayment impossible.
• Higher interest makes life difficult. Credit in such a condition pushes the borrowers into a situation from which recovery is painful and they get into the debt trap.

Question. Describe the utility of Cheque.
Answer : A Cheque is a paper that instructs the bank to pay a specific amount from the account holder’s account to the person in whose name the Cheque has been issued. Demand deposits are accepted as a means of payment because the depositors get the facility of Cheque against it, which is used to settle the transaction without the use of money.

Question. “Money has made transactions easy.” Justify. How is money used as a medium of exchange? Explain with examples. or How does money solve the problem of double coincidence of wants? Explain with an example.
Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheatgrowing farmer who wants to buy shoes and needs to sell wheat. Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question. How is money used in everyday life? Explain with examples.
Answer : Use of money in our daily life: a. Money has become an essential part of life. b. For any kind of exchange of goods and services, we need money. c. In earlier times, when money was not in use, grains and cattle were used which was quite difficult as we had to face the problem of double coincidence of wants. But now for every transaction we are using money.

Question. How can money be easily exchanged for goods and services? Give an example to explain.
Answer : If a shoe manufacturer wants to sell shoes and buy wheat, then first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat. Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and that money can used to buy wheat.

Question. “The credit activities of the informal sector should be discouraged.” Support the statement with arguments.
Answer : It is true to say that the credit activities of the informal sector should be discouraged. It is due to the following reasons: a. They charge high rate of interest in comparison to that of formal sector. b. Thus the cost of borrowing is high. c. Due to high cost of borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development and ultimately will affect the country’s economic development.

Question. What is money? Why is modern money currency accepted as a medium of exchange?
Answer : Money is a medium of exchange used in settling the transactions. a. Money acts as an intermediate in the exchange process and eliminates the need for double coincidence of wants. As money acts as intermediate, it is also called medium of exchange. b. People have exchanged their goods and services since from the beginning. The medium of exchange kept on changing in different phases. c. In the modem phase currency notes- paper notes and coins are used as a medium of exchange. d. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency. e. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question. “Whether credit will be useful or not, depends upon the situation.” Give two different examples in support of this statement.
Answer : It is true to say that the usefulness of credit depends on the situations. Positive role of credit: credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan. Negative role of credit: sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question. “Deposits with the banks are beneficial to the depositors as well as to the nation.” Examine the statement.
Answer : Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers. This helps other people to run and expand their business which will increase the individual income and finally the country’s income.

Question. ‘Credit has its own unique role for development.’ Justify the statement with arguments.
Answer : Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example, Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan. Sometimes, credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example, a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question. How is money transferred from one bank account to another bank account? Explain with an example.
Answer : In modern times we have different options to transfer the money from one bank account to another such as through Cheque, draft, internet banking etc. A Cheque is a paper that instructs the bank to pay a specific amount from the holder’s account to the person in whose name the cheque has been issued. In case of a Cheque, a person writes a Cheque in the name of the person in whose account the money is to be transferred. Then it is deposited by the person in his/ her bank. The bank transfers the amount to the person on whose name the cheque is drawn.

Question. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.
or “Cheap and affordable credit is crucial for the country’s development.” Assess the statement.
Answer : Due to the following three reasons, cheap and affordable credit is important for the country’s development:
a. It will help people to take credit for variety of reasons.
b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest.
c. It will be easy for the people to repay the loan.

Question. “Banks are efficient medium of exchange.” Support the statement with arguments.
Answer : Yes, it is true to say that Banks are efficient medium of exchange. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.

Question. “Poor households still depend on informal source of credit.” Support the statement with examples. or “Most of the poor household still depend on the informal sector for loans, both in rural and urban areas of India.” Support the statement with three examples.
Answer : Yes, it is true that the poor households still depend on informal source of credit. It is due to the following reasons: a. Banks are not present everywhere. b. Collateral is required by the formal sector loan providers. c. Many a time, the moneylenders know the borrowers personally and willing to pay the loan without any collateral.

Question. Why is it necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas? Explain. (Delhi 2015) or Why is there a great need to expand formal sector of credit in India? Explain any three reasons.
Answer : Due to the following reasons it is necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas: a. There is limited availability of the formal sector credit sources in the rural areas. b. The poor borrowers are bound to take loan from the moneylenders at high rate of interest. c. Due to high rate of interest they are not able to repay the loan and caught in debt- trap.

Question. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reason.
Answer : Modern currency accepted as a medium of exchange without any use of its own due to the following reasons: a. In the modern times, currency notes and coins are used as a medium of exchange. b. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency. c. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question. Explain with examples, how people are involved with the banks.
Answer : Three different people are involved in this processdepositors, bank and the borrowers. Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Those who open an account and deposit money in it are called depositors. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers. This is how the banks mediate between the depositors and the borrowers i.e. those having surplus and those who are in need of money.

Question. Explain with an example, how credit plays a vital and positive role for development?
Answer : Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question. Why do lenders ask for a collateral while lending? Give any three reasons.
Answer : The lenders ask for a collateral while lending due to the following reasons: a. It is an asset that the borrower owns and given to the lender as a guarantee that he will repay the loan. b. If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back. c. By this the borrower is bound to pay the loan within the defined time period.

Question. What are the modem forms of money? Why is rupee widely accepted as a medium of exchange? Explain two reasons.
Answer : In the modern phase, currency notes- paper notes and coins are used as a medium of exchange. These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency. As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question. What is a collateral? Why do lenders ask for collateral while lending? Explain.
Answer : It is an asset that the borrower owns and given to the lender as a guarantee that he will repay the loan. If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back. The lenders ask for a collateral while lending due to the following reasons: a. It is an asset that, the borrower owns and given to the lender as a guarantee that he will repay the loan. b. If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back. c. By this the borrower is bound to pay the loan within the defined time period.

Question. ‘Cheap and affordable credit is essential for poor household both in rural and urban areas.’ In the light of the above statement, explain the social and economic values attached to it.
Answer : Due to the following three reasons cheap and affordable credit is important for the country’s development: a. It will help people to take credit for variety of reasons. b. It will help poor people to get rid of the problem of moneylenders and their high rate of interest. c. It will be easy for the people to repay the loan. Social values: Due to cheap and affordable credit people will not be discriminated and ill-treated by the lenders. Economic values: Due to the cheap and affordable credit the borrowers will easily repay the loan and there will be economic development,

Question. Explain any three loan activities of banks in India.
Answer : The three loan activities of the banks are: a. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there. b. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. c. Rest of the amount is used to extend loan to the borrowers.