Chapter 3 - Money and Credit
In Vidyakul CBSE Notes Class 10 Economics Chapter 3 - Money and Credit, you will learn about modern forms of money and how they relate to the banking system. Later in this chapter, you will learn about credit and how it affects borrowers in different circumstances. So, if you want a deeper understanding of these topics, please review this note. Alternatively, you can download these Vidyakul CBSE Notes Class 10 Social Sciences Notes in pdf format for future reference during the exam.
Money as a Medium of Exchange
Money acts as an intermediary in the process of exchange and is called a medium of exchange. Anyone who owns money can easily exchange it for the goods or services they want.
Modern Forms of Money
In the early centuries, Indians used grain and cattle as currency. After that, the use of metal coins such as gold, silver, and copper began and this continued until the last century. Now, modern forms of money include currencies such as bills and coins. Modern forms of money (currency and deposits) are closely related to the operation of the modern banking system.
Currency
In India, the Reserve Bank of India issues currency on behalf of the central government. No other person or organization can issue the currency. Rupiah is widely used as a medium of exchange in India.
Bank Deposits
Another form of where people hold money is bank deposits. People deposit extra money into the bank by opening a bank account in their name. Banks take deposits and sometimes pay them as interest on deposits. Deposits in a bank account can be withdrawn on demand and these deposits are called demand deposits. Payment is by check, not cash. A check is a document directing a bank to pay a specified amount from a person's account in the name of the check writer.
Lending Activities of Banks
Banks hold only part of their deposits in cash form. Banks in India these days hold about 15% of their deposits in cash. It is kept as a reserve to pay depositors who may come to withdraw money from the bank at any time. Banks use most of their deposits to provide loans. Demand for loans for various economic activities is high. Banks charge higher interest rates on loans than they do on deposits. The difference between the amount charged to borrowers and the amount paid to depositors is the bank's main source of income.
Two Different Credit Situations
A loan (loan) is an agreement in which a lender provides money, goods, or services to a borrower in return for a promise of future payments.
Here are two examples to help you understand how credit works.
Holiday season: In this case, Salim takes out a loan to meet the production needs of working capital. The loan helps him cover current production costs and increase his income by completing production on time. In this situation, the loan helps to increase the income so the person is better than before.
Swapna's problem: In Swapna's case, a bad harvest made it impossible to repay the loan. She had to sell part of her land to pay off her loan. Rather than helping Swapna improve her income, the loan made her situation worse.
This is an example of a debt trap. Loans in this case push the borrower into a very painful situation. Whether a loan is useful depends on the risk of your situation and whether you have support in case of a loss.
Loan Terms
Each loan agreement specifies an interest rate that the borrower must pay to the lender along with repayment of the principal of the debt. Lenders also require security (collateral) for the loan.
- Collateral (collateral) is property (e.g. land, buildings, vehicles, livestock, bank deposits) owned by the borrower and used as security for the lender until the loan is repaid. If the borrower is unable to repay the loan, the lender has the right to collect the payment by selling the assets or collateral.
Interest rates, collateral and document requirements, and repayment methods are collectively referred to as loan terms. It may vary depending on the nature of the borrower and the borrower.
Official Sector Credit in India
Affordable Credit is vital to the country's development. The different types of loans can be grouped as follows:
Official Sector Loans: These are loans from banks and cooperatives. The Reserve Bank of India oversees the functioning of official lending sources. Banks are required to report to the RBI the amount, subject, and interest rate of the loan. Lending activities of lenders in the informal sector.
No one can stop them from using dishonest means to get their money back.
Formal and informal credit
The formal sector meets only about half of the total credit needs of the rural population. The remaining loan needs are met from unofficial sources. It is important that official credit be distributed more evenly so that the poor can benefit from cheaper credit.
Banks and cooperatives should increase lending, especially in rural areas, to reduce reliance on informal sources of credit.
official sector credits need to be expanded, but it is also important that everyone gets these credits.
Self-Help Groups for the Poor
Poor families still rely on informal sources of credit because: Even if there is a bank, getting a loan from a bank is much more difficult as it requires related documents and collateral.
To overcome these problems, people created Self Help Groups (SHGs). SHGs are small groups of poor people who promote small savings among their members. A typical SHG has 15-20 members, usually belonging to one neighborhood, who meet and save regularly.
Advantages of Self Help Group (SHG)
- It helps borrowers to overcome the problem of lack of collateral.
- People can get timely loans for a variety of purposes and at a reasonable interest rate.
- SHGs are the building blocks of the organization of the rural poor.
- It helps women to become financially self-reliant.
- 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, etc.
Frequently asked Questions on CBSE Class 10
How many currencies are there in the world?
A total of 180 currencies are recognized by the United Nations.
What of Self-help Groups?
1. Women can be financially independent
2. Can borrow loans without collateral
3. Loans are provided are a low-interest rate
4. Helps the rural and needy people
What is ‘collateral’?
Any property or valuable item which is accepted by the lender and is accepted as security for a loan.
