NCERT Economics Class 10 Chapter 3 Money and Credit CBSE Board Sample Problems Long Answer (For CBSE, ICSE, IAS, NET, NRA 2022)

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Question

What formalities do the borrower have to do to get a home loan?

Solution

  • First, he has to give a certificate of source of income.
  • Show employment record
  • Handing over of new house papers (registry of the house) to bank.
  • If the bank is not satisfied, it takes a guarantee of one/two persons.
  • The loan is taken from the guarantor if the borrower owes the loan.

Question

The credit activity of the informal sector should be discouraged. Support the statement.

Solution

  • 85 % of loan taken by the poor household in the urban areas are from informal sources.
  • Informal lenders charge very high interest on their loans.
  • There are no boundaries and restrictions, so it can be the reason of exploitation of the borrowers.
  • Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.
  • In certain case the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.
  • This could lead to increasing debt and debt trap, therefore the credit activities of the informal sector should be discourage.

Question

Why is it necessary that banks and co-operatives increase their lending in rural areas? Explain.

Solution

  • The formal sector i.e.. the banks and the cooperatives need to engage more in the lending activities because of the disadvantages posed by the informal sector.
  • There is no organization which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they want and there is no one to stop them from using unfair means to get their money back.
  • The high cost of borrowing discourages many people who wish to start an enterprise. It also significantly reduces the income of the borrower as much of the earnings go into repayment of the loan.
  • Borrowings at much cheap rates from the formal sector would therefore encourage higher incomes which would in turn lead to an increase in the amount of borrowings from the banks for various purposes.
  • An increase in borrowings would help people in growing crops, do business, set up small scale industries etc. which would add to the development aspect of a country.

Question

How are deposits with the banks beneficial for an individual as well as for the nation? Explain with examples.

Solution

Deposits with banks are beneficial for both individual and nation:

  • People can deposit money with banks after opening a bank account. This ensures the safety of the money and they also earn an interest from the bank.
  • Demand deposits can be withdrawn whenever the person wants. It also allows payments to be made through cheque.
  • Through cheques, the money gets directly transferred between banks. So, no direct payment of cash needs to be made as the deposit itself is money in the modern economy.
  • Banks extend loans from the deposits they receive so they mediate between people having surplus fund and people in need of more funds through these deposits.
  • For example, If Person A has deposited money in a bank, he earns an interest. When required, A can also pay through a cheque to Person B. Person A can also take loan at an interest rate lesser than what is in the informal sector.
    • Explanation: Deposits with banks enables many facilities like cheques, credit cards, loans etc. Since it is also white money, the nation՚s economy is more transparent.

Question

Describe any four advantages of Self-Help Groups for the poor.

Solution

The advantages of Self-Help Groups for the poor are:

  • They help the poor to become self-reliant in terms of savings and generating income as the decisions regarding savings are taken by the group members.
  • They avail the facilities of loans from formal sources like banks at low rate of interest.
  • They create self-employment opportunities by discussion within their group.
  • They make it possible for the poor to avail timely finance without any collateral.

Question

Which government body supervises the functioning of formal sources of loans in India? Explain its functioning.

Solution

  • Reserve Bank of India supervises the functioning of formal sources of loans in India.
  • It issues currency notes on behalf of the central government.
  • It issues guidelines for fixing rate of interest on deposits and lending by banks.
  • It ensures that banks should maintain a minimum cash balance out of the deposits they receive.
  • It ensures that the banks should give loans not only to profit making businesses but also to poor people and small traders.
  • Periodically, the banks have to submit a report to the RBI on how much they are lending, to whom and at what interest rate.