CBSE Class 10 Economics Subjective Question Chapter 3 Money And Credit

https://1investing.in/ with a secure job or a running business will get a loan because they have the capability to repay the installments. Majority of the credit needs of the ……………… households are met from informal sources. This supervision is necessary to ensure that equality is preserved in business and industry so that small industries also grow.

Describe the importance of formal sources of credit in economic development. May be because of weather or some natural disaster his all crop are destroyed and now he has not even a single penny to start any other business to repay his debts. After comparing to the formal lenders we found that the most of the informal lenders charge much higher interest on loans.

Why Are Funds In Checking Accounts Called Demand Deposits?

The deposits in the bank accounts can be withdrawn on demand so these deposits are called demand deposits. Banks accept the deposits and also pay an interest rate on the deposits. In this way people’s money is safe with the banks and it earns interest. It is authorised by the government of the country. People save their money in banks by opening an account.

In modern days, transactions are made in terms of money because a person holding money can easily exchange it for any commodity or service that he or she might want. Thus, everyone prefers to have payments in money and then exchange the money for things that they want. In such situations a small farmer has to sell a part of his land to repay the loan. Such cases have high risks because the payment of loan entirely depends on good crops which in turn depends on good rain.

If Salim continues to get order from traders then after six years by using his sales profit he can easily finance his future business. Due to the profit from the sales he has no need to borrow money from any source. Already he will be much able to afford this much money to start even a new business after 6 years.

What is DEMAND DEPOSIT? What does DEMAND DEPOSIT mean? DEMAND DEPOSIT meaning & explanation

The transaction is complete without any payment of cash. Even if they are present, getting a loan from a bank is much more difficult than taking aloan from informal sources. Therefore there is a need to expand formal sectors so that everyone receives these loans. In formal sectors, people could borrow cheaply for a variety of needs.

M1 does not include financial assets such as savings accounts and bonds. Loans from Co-operatives Besides banks, the other major source of cheap credit in rural areas are the co-operative societies (or co-operatives). Members of a co-operative pool their resources for co-operation in certain areas. There are several types of co-operatives possible such as farmer’s co-operatives, weaver’s co-operatives, industrial workers co-operatives, etc.

His friend takes this cheque and deposit in his account in the bank. This said amount is transferred from one bank account to another bank account. Bank loans require proper documents and collateral. Banks are not present everywhere in rural India. Even when they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources. The facility of cheque against demand deposit makes it possible to directly settle payment without the use of cash.

The barter system requires a double coincidence of wants on the part of those who want to exchange goods or services. On what basis will Manav decide whether to borrow from the bank or the moneylender? In situations with high risks, credit might create future problems for the borrower. Banks demand collateral which everyone cannot provide. Borrower has no means to repay the loan in cash.

• Another Function ‘Liquidity of Money’ is added these days.
• Promise to sell crops to traders at low prices as repayment of loan.
• Reserve Bank of India uses four alternative measures of money supply called as M1, M2, M3, and M4.
• With the help of this collected amount as collateral, the cooperatives have received a large loan from the bank.
• In India about 80% of farmers are small farmers, who need credit for cultivation.
• Whereas a decrease in money supply will result in increased interest rates, price values with a coupled increase in banks’ reserves.

The RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc. If the borrower fails to repay the loan, the lender has all the rights to sell the assets or collateral to obtain the payment. The third method under the RBI approach of money supply includes the net deposits made under a specified period with the banks. It includes the normal money supply and net deposits. The deposit itself is a liability owed by the bank to the depositor.

What are checkable deposits?

It is an organisation having certain members who contribute their savings and constitute a fund. This fund is used in future for making finance and advances to other members, this process helps people to reduce the functioning of informal sectors of credit. It helps the borrowers to overcome their problem of lacking collateral, besides this it helps women also to become self-dependent and educated. The money supply is the total amount of money—cash coins and balances in bank accounts—in circulation. The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.

Also, RBI makes sure that banks do not loan out more money than they are supposed to, as this can lead to crisis situations. An example is the great depression of the 1930s, as it affected the world economy. The RBI monitors the banks in maintaining a minimum cash balance out of the deposits they receive. Money, thus, acts as common medium of exchange, a common measure of value, as stamlard of deferred payments and a store of value. Money is the most liquid of all assets because a person having money can convert it into anything he likes.

The concept of money supply can be defined as the total quantity of currency that can be included in a nation’s economy. Money supply includes the total money both in the form of cash as well as deposits that can be used as cash easily. Checkable deposits is a technical term for any demand deposit account against which checks or drafts of any kind may be written. … They also include any kind of negotiable draft such as a negotiable order of withdrawal or Super NOW account.

He has the benefit of selling his product at market rates. It is required to create awareness among farmers about formal sector loans. The facility of cheque against demand deposits makes it possible to directly settle the payments without the use of withdrawal. For this reason, it is important that the formal sector gives out more loans so that borrowers are not duped by moneylenders, and can ultimately contribute to national development. This leads to increase in the production, profits and employment.

Economics – Deposit with banks

Its policies must protect the interests, not only of the rich and the powerful but all the people in the country. Mode of payment and its duration of return to be adhered. F) Easy access of loans to small cultivators and small scale industries. A) Helps to meet the working capital needs of production. Explain with an example how the terms of credit can be unfavorable for the small farmer.

To repay her loan person has to sell a portion of her/his land. For example- a loan given to an entrepreneur for setting up a business might contribute to employment generation, infrastructure development in the near future. Modern forms of money include currency – paper notes and coins. How is money transferred from one bank account to another bank account?

The term why are demand deposits considered as money class 10 supply refers only to that share of capital or cash that is governed by the people of the country. On a bank’s balance sheet demand deposits are reported as current liabilities. Thus, we see that demand deposits share the essential features of money. They hold up money balance thinking that income from non-monetary assets like bond will be low and so the cost of money holding will also be low. Thus speculative demand for money becomes very high so much so that when rate of interest declines to minimum, say 3% as shown in Fig., speculative demand for money becomes infinite .

The use of money facilitates exchange, exchange promotes specialisation, specialisation increases productivity and efficiency. A good monetary system is, therefore, of immense utility to human society. Money is also called a bearer of options or generalised purchasing power because it provides freedom of choice to buy things he wants most from those who offer best bargain. Demand Deposits also known as Current Account deposits refer to those deposits that provide the depositor the liberty to withdraw money at any point of time. That is, the account holder of the demand deposits can demand these deposits at any point of time as per their discretion and convenience.

The failure of crop due to either poor rainfall or attack on the crop by pests. The situation of the person gets much worse off than before. Easy access of loans to small cultivators and small scale industries.

Money eliminates the need for double coincidence of wants. Money acts as an intermediate in the exchange process, it is called a medium of exchange. Small farmers normally have no collateral to pledge against loans.

• Money acts as an intermediate in the exchange process, it is called a medium of exchange.
• May be because of weather or some natural disaster his all crop are destroyed and now he has not even a single penny to start any other business to repay his debts.
• “Self Help Groups are the building blocks of organisation of the rural poor.” Support the statement with examples.
• Money, thus, acts as common medium of exchange, a common measure of value, as stamlard of deferred payments and a store of value.
• A checking account is the most widely used instant demand account that offers depositors excellent liquidity using a debit card and chequebook.

Besides the period allocation in both deposits, demand deposits may attract a monthly maintenance fee and give out less interest than fixed deposits. Post-pandemic investments and savings in Demand Deposits are rapidly increasing. There are three kinds of Demand deposit accounts where you can deposit or withdraw your money. Growth of overnight demand deposits in India wherein December 2021 saw a significant year-over-year increase in demand deposits of 32%. Indians have switched from term deposits to demand deposits despite not offering attractive interest rates.

Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit he surrenders the legal title to the cash and it becomes an asset of the bank. Demand deposits are payable on demand whereas time deposits are payable on expiry of specified period. Demand deposits do not carry any interest but time deposits carry a fixed rate of interest. Demand deposits are chequable deposits whereas time deposits are not. Does the borrower have the potential to repay the loan or not?

The money is called as a medium of exchange because it acts as an intermediate in the exchange process. To check how much banks are lending to whom and on what interest rates. If he is not aware of loan borrowing from the banks then he might not be able to borrow credit from it. Manav will decide on whether to borrow from the bank or the moneylender? It looks over the banks in maintenance of cash balance.