CBSE Class 10 - Economics - Chapter 3 - Money and Credit (Short Q and A)

Money and Credit

Short Question and Answers based on NCERT Chapter

Q1: Define money?

Answer: It is defined as medium of exchange.


Q2: What does money serve?

Answer: Money serves as :
a. a unit of accounting
b. a store of value or purchasing power
c. a standard of deferred payment


Q3: What is Double Coincidence of Wants?

Answer: It refers to a situation wherein what a person wishes to sell is exactly the same as that the other person wishes to buy.



Q4: In which situation Double Coincidence of Wants is the most suitable?

Answer: In barter system.



Q5: What is the form of money in Ancient Period?

Answer: Grain and cattle (Barter System)





Q6: What is the form of money in Medieval Period?

Answer: Metallic coins of gold, silver, copper



Q7: What is the modern form of money?

Answer: Modern forms of money include currency - paper notes and coins.



Q8: How does paper currency has value?

Answer: Paper currency has value because it has got the sanction of the government.



Q9: Name the organization in India which is authorized to issue currency notes on behalf of GOI?

Answer: Reserve Bank Of India (RBI)


Q10: Justify money is the most liquid asset?

Answer: Money is the most liquid asset because it can easily be acquired or disposed of without high transaction costs. People can easily convert money to other asset forms.



Q11: Why are bank deposits called demand deposits?

Answer: Because the deposited money can be withdrawn from banks as and when required on demand.



Q12: How does banks facilitate transfers of money?

Answer: Through cheques, demand drafts, credit/debit cards, ATMs and internet banking.



Q13: What is a cheque?

Answer: A cheque is a document issued by an account holder to the bank, instructing the bank to pay a specific amount from the issuer’s account to the person in whose name the cheque has been issued.



Q14: What percentage of cash is reserved by banks for day to day withdrawals. Who set the guidelines for this cash reserve?

Answer: Around 15%. Guidelines set by RBI.


Q15: What is the main source of income of banks?

Answer: The interest provided by banks to depositors is less than the interest charged by banks from borrowers on loans. This difference is the main source of income of banks.



Q16: Define Debt Trap?

Answer: It is a situation in which a person is caught in the vicious cycle of debts. He/she takes loans for meeting his/her requirements and on being unable to pay back the loan, takes a fresh loan to repay the old loan. This leaves him/her indebted all through his/her life.



Q17: Define terms of credit.

Answer: The terms of credit include rate of interest, collateral and mode of repayment. The terms of credit varies from one loan agreement to another and also on the nature of the lender and the borrower.



Q18: What is collateral?

Answer: Collateral is an asset owned by the borrower like land, building, vehicle, livestock etc. It is kept with the bank as a guarantee against a loan until the loan is repaid. In case of failure in repaying the loan, the bank has the rights to sell/auction the collateral to recover the loan amount.



Q19: What are the formal sources of credit?

Answer: Banks and cooperative societies.



Q20: What are the informal sources of credit?

Answer: Money lenders, friends and relatives, merchants and landlords.



Q21: How does Self Help Group mitigates the risk of debt trap?

Answer: Self Help Group pools the savings of its members, who in general are poor people. Time to time money from the pool is given to its members as loans at cheap rate of interest. It helps borrowers overcome the problem of lack of collateral and avoids taking loans from private lenders at high rate. Thus the dependence on informal sources of credit reduces.