Home · Schooling · CBSE · Class 10 · Social Science · Money and Credit · End-of-chapter exercises

NCERT Class 10 Social Science Money and Credit: Exercise Solutions

Point-by-point answers for every question of End-of-chapter exercises in NCERT's Class 10 Social Science book, chapter “Money and Credit”, written by Shishya. Each question is in our own short words; open the NCERT chapter for the exact wording and figures.

1. Exercises Q1

   Explain how, when risks are high, credit can create further problems for the borrower.

   1. Informal lenders charge much higher interest rates than formal banks.
   2. High interest means a large part of the borrower's earnings goes to repayment.
   3. This leaves less income for the borrower's own needs.
   4. In some cases, the repayment amount exceeds the borrower's total income.
   5. This leads to increasing debt and a debt trap for the borrower.

   Answer: High risks often force borrowers to take informal loans with high interest, which consumes their earnings, reduces their income, and can lead to a debt trap.

   Report an error in this solution

2. Exercises Q2

   How does money solve the problem of double coincidence of wants? Explain with your own example.

   1. Barter exchange requires a person to find someone who wants their specific good and has the good they want.
   2. Money acts as an intermediate medium that allows a person to sell their good for cash first.
   3. Once they have money, they can buy any other commodity they need from a different seller.
   4. For example, a farmer sells rice for money and then uses that money to buy clothes from a tailor.

   Answer: Money solves the double coincidence of wants by acting as a medium of exchange, allowing separate transactions for selling and buying.

   Report an error in this solution

3. Exercises Q3

   How do banks act between people who have surplus money and people who need money?

   1. Banks collect savings from people who have extra money.
   2. They provide loans to people who need money for various purposes.
   3. This process helps in the smooth functioning of the economy by connecting savers and borrowers.

   Answer: Banks act as intermediaries by accepting deposits from those with surplus funds and lending them to those in need.

   Report an error in this solution

4. Exercises Q4

   Look at a 10 rupee note. What is written at the top, and what does that statement mean?

   1. At the top of the note is printed "Reserve Bank of India", with the words "guaranteed by the central government"; the note also carries the promise to pay the bearer ten rupees.
   2. This means the note is currency issued by the Reserve Bank of India on behalf of the central government, and no other person or organisation is allowed to issue currency.
   3. Because the currency is authorised by the government, everyone in India must accept it as a medium of exchange, even though the paper itself has no use of its own.

   Answer: It says the note is issued by the Reserve Bank of India and backed by the central government: the currency is authorised by the government, so it is accepted by all as a medium of exchange.

   Report an error in this solution

5. Exercises Q5

   Why do we need to expand formal sources of credit in India?

   1. Informal lenders charge much higher interest rates than formal lenders, making borrowing very expensive for people.
   2. High borrowing costs mean borrowers use a large part of their earnings to repay loans, leaving them with less income for themselves.
   3. In some cases, the amount to be repaid exceeds the borrower's income, leading to a debt trap and increasing poverty.
   4. Currently, only richer households easily access cheap formal credit, while poor households depend on costly informal sources.
   5. Expanding formal credit ensures that poor people can access affordable loans for various needs like growing crops or starting businesses.
   6. This expansion helps reduce dependence on informal sources and allows more people to benefit from cheaper loans for development.

   Answer: Formal credit must expand to provide affordable loans to the poor, reduce reliance on expensive informal lenders, and prevent debt traps.

   Report an error in this solution

6. Exercises Q6

   What is the basic idea behind Self Help Groups (SHGs) for the poor? Explain in your own words.

   1. SHGs organize rural poor, especially women, into small groups of 15 to 20 members from one neighborhood.
   2. Members pool their regular savings, which helps them overcome the lack of collateral needed for bank loans.
   3. The group provides small internal loans at lower interest rates than informal moneylenders charge.
   4. Regular meetings allow members to discuss social issues and make decisions about savings and loan activities.
   5. After a year or two of regular savings, the group becomes eligible to take larger loans from banks in its name.

   Answer: SHGs help the poor by pooling savings to access credit without collateral and fostering financial self-reliance.

   Report an error in this solution

7. Exercises Q7

   Why might banks be unwilling to lend to some borrowers?

   1. Banks often hesitate to lend to borrowers who cannot provide adequate collateral or security for the loan.
   2. Small borrowers may lack the necessary documentation and records that banks require to assess their creditworthiness.
   3. Lending to certain groups, such as small farmers, involves high risk and high transaction costs for the bank.

   Answer: Banks may be unwilling to lend due to lack of collateral, insufficient documentation, and high risks associated with small borrowers.

   Report an error in this solution

8. Exercises Q8

   How does the Reserve Bank of India supervise banks, and why is this needed?

   1. The Reserve Bank of India monitors banks to ensure they maintain a minimum cash balance from their deposits.
   2. Banks are required to periodically submit information to the RBI regarding the amount of loans given, the borrowers, and the interest rates charged.
   3. This supervision is necessary to regulate the formal sources of credit and ensure the banking system functions safely and effectively.
   4. It helps protect depositors by ensuring banks have enough cash to meet withdrawal demands and manage their lending activities responsibly.

   Answer: The RBI supervises banks by monitoring their cash reserves and requiring regular reports on lending details to ensure the stability and proper functioning of the formal credit system.

   Report an error in this solution

9. Exercises Q9

   Analyse the role of credit in development.

   1. Credit allows producers like Salim to meet working capital needs and complete production on time.
   2. It helps borrowers increase their earnings by enabling them to fulfill large orders and make profits.
   3. Providing credit to the poor at reasonable rates allows them to start small income-generating activities.
   4. Increasing formal sector credit reduces dependence on expensive informal lenders, which is essential for development.

   Answer: Credit plays a vital role in development by supporting production, enabling the poor to start businesses, and reducing reliance on costly informal sources.

   Report an error in this solution

10. Exercises Q10

    Manav needs a loan to start a small business. How will he decide whether to borrow from a bank or a moneylender? Discuss.

    1. Manav will compare the interest rates, as banks charge lower rates while moneylenders charge very high rates.
    2. He will consider the requirement of collateral, since banks demand security like land or deposits which he may not have.
    3. Manav will look at the repayment schedule and flexibility, noting that banks have fixed terms while moneylenders may harass borrowers.
    4. He will check if he can form a Self Help Group to access bank loans without individual collateral at reasonable rates.

    Answer: Manav will decide based on interest rates, collateral requirements, repayment terms, and the availability of group-based credit options.

    Report an error in this solution

11. Exercises Q11(a)

    About 80 per cent of India's farmers are small farmers who need credit: why might banks be unwilling to lend to them?

    1. Banks are often unwilling to lend to small farmers because the loans carry high risks.
    2. Small farmers may not have the required documentation or collateral that banks demand.
    3. The poor have to depend on informal sources as they do not receive formal credit easily.

    Answer: Banks may be unwilling to lend to small farmers due to high risk and lack of formal credit access for the poor.

    Report an error in this solution

12. Exercises Q11(b)

    From what other sources can small farmers borrow?

    1. Small farmers can borrow from informal sources like moneylenders, traders, and landlords.
    2. Relatives and friends are also a source of credit for small farmers.
    3. Self Help Groups provide loans to members after they have saved regularly.
    4. Banks and cooperative societies offer formal credit to farmers.

    Answer: Small farmers can borrow from moneylenders, traders, landlords, relatives, friends, Self Help Groups, banks, and cooperative societies.

    Report an error in this solution

13. Exercises Q11(c)

    With an example, explain how the terms of credit can be unfavourable for a small farmer.

    1. Small farmers often rely on informal lenders like moneylenders because banks may not lend to them easily.
    2. Moneylenders charge very high interest rates and demand tough conditions for repayment.
    3. Shyamal, a small farmer in Sonpur, borrows from a moneylender at a high rate to meet his cultivation needs.
    4. This high cost makes the terms of credit unfavourable as it increases his debt burden significantly.

    Answer: Small farmers face unfavourable credit terms from informal lenders due to high interest rates and strict repayment conditions.

    Report an error in this solution

14. Exercises Q11(d)

    Suggest ways small farmers can get cheap credit.

    1. Small farmers can form Self Help Groups and save regularly; after a year or two the group can take a bank loan without collateral.
    2. They can borrow from agricultural cooperatives and banks, which lend at lower rates of interest than moneylenders.
    3. The government and the Reserve Bank of India can push banks and cooperatives to lend more to rural and poor households.

    Answer: Through Self Help Groups linked to banks, through agricultural cooperatives and banks, and through government and RBI efforts to expand formal credit to rural areas.

    Report an error in this solution

15. Exercises Q12

    Fill in the blanks: (i) most credit needs of ___ households are met from informal sources (ii) ___ costs of borrowing increase the debt burden (iii) ___ issues currency notes on behalf of the Central Government (iv) banks charge a higher interest rate on loans than they offer on ___ (v) ___ is an asset the borrower owns and uses as a guarantee until the loan is repaid.

    1. Most credit needs of poor households are met from informal sources.
    2. High costs of borrowing increase the debt burden.
    3. Reserve Bank of India issues currency notes on behalf of the Central Government.
    4. Banks charge a higher interest rate on loans than they offer on deposits.
    5. Collateral is an asset the borrower keeps as security until the loan is paid back.

    Answer: poor, high, Reserve Bank of India, deposits, collateral

    Report an error in this solution

16. Exercises Q13(i)

    MCQ: in an SHG most decisions on savings and loans are taken by (a) the bank (b) the members (c) a non-government organisation

    1. The text states that most important decisions regarding savings and loan activities are made by the group members.
    2. The group is responsible for repayment and decides on loans for various purposes.
    3. Therefore, the members take these decisions rather than the bank or an NGO.

    Answer: (b) members

    Report an error in this solution

17. Exercises Q13(ii)

    MCQ: formal sources of credit do NOT include (a) banks (b) cooperatives (c) employers

    1. Banks are identified in the text as formal sources of credit that provide loans.
    2. Cooperative societies are also listed as formal sources of credit in the chapter.
    3. Employers are explicitly mentioned as part of the informal sources of credit.

    Answer: (c) Employers

    Report an error in this solution

← Money and Credit: notes, practice and all exercises