REVISION QUESTIONS: MONEY AND CREDIT

Q1. Surrender of notes to the bank by the government by a specific period and receive new currency notes is called
A. Digital banking B. Banking C. Demonetisation D. Monetization
Q2. Give an example of digital banking?
A. Cheque B. Demand draft C. Deposit form D. ATM card
Q3. What is the double coincidence of wants?
A. Both parties agree to sell and buy each other’s commodities B. Credit on commodity
C. Exchanging commodity for commodity D. Loan on commodity till sold further
Q4. What eliminates the need for double coincidence of wants?
A. Credit B. Debit C. Money D. Barter system
Q5. Since money acts as an intermediate in the exchange process, it is called ……...
A. Medium of trade B. Medium of Exchange C. Medium of Business D. Medium of transaction
Q6. What were the earliest form of objects used as money in India?
A. grains and cattle B. Coins C. Jewels D. Land
Q7. What came after grains and cattle as a medium of exchange in India?
A. Currency notes B. metallic coins C. Barter system D. Value for land
Q8. The modern currency is without any use of its own, then why is it accepted as a medium of exchange?
A. Because it is convenient B. It has digital and manual system
C. It can be used in foreign exchange D. Is authorised by the government of the country
Q9. Which is an important form in which people hold money?
A. Moneylenders B. Bank deposits C. Post office deposits D. Mutual funds
Q10. People also have the provision to withdraw the money as and when they require the deposits in the bank
accounts to be withdrawn, what are these deposits called?
A. Fixed deposits B. Savings C. Demand deposits D. Demand drafts
Q11. A ………... is a paper instructing the bank to pay a specific amount from the person’s account to the person in
whose name it has been issued?
A. Deposit slip B. Withdrawal slip C. ATM facility D. Cheque
Q12. The facility of cheques against demand deposits makes it possible to directly settle payments without the use
of………
A. Deposit slip B. Cash C. Moneylender D. Other funds
Q13. M. Salim wants to withdraw Rs 20,000 in cash for making payments to Prem after Prem receives the money he
deposits it in his own account? What is the result?
A. Salim’s balance in his bank account increases, and Prem’s balance increases.
B. Salim’s balance in his bank account decreases and Prem’s balance increases.
C. Salim’s balance in his bank account increases and Prem’s balance decreases
D. None of the above
Q14. How do banks mediate between those who have surplus funds (the depositors) and those who are in need of
these funds (the borrowers)?
A. Mutual funds B. Share dividend C. Loans D. Deposits
Q15. ………...refers to an agreement in which the lender supplies the borrower with money, goods or services in
return for the promise of future payment.
A. Debit B. Cash transaction C. Credit D. Trade
Q16 In an SHG most of the decisions regarding savings and loan activities are taken by
A. Bank. B. Members C. Non-government organization. D. None of the above
Q17. In rural areas, the main demand for credit is for …………….
A. Industry B. Crop production. C. Irrigation D. Cultivation
Q18. ………………….is an asset that the borrower owns (such as land, building, vehicle, livestock, deposits with
banks) and uses this as a guarantee to a lender until the loan is repaid?
A. Debt trap B. Guarantee C. Collateral D. Warranty
Q19. Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is
called the …………..?
A. Debt trap B. Terms of credit C. Guarantee D. Warranty
Q20. Which organizations arrange formal sector loans?
A. Commercial Banks B. Cooperatives C. Cooperative Banks D. All the above
Q21. According to the information given on formal and informal loans how much of the loan is taken by the poor
household from informal sources?
A. 60% B. 75% C. 85% D. 70%
Q22. Which is one of the major reasons which prevent the poor from getting bank loans?
A. Illiteracy B. Non availability of banks in rural areas C. No collateral D. Shy to approach formal organizations
Q23. ……………..costs of borrowing increase the debt-burden?
A. high B. low C. equal D. none
Q24. What kind of loans do members of SHG take?
A. Individual loans B. Group loans C. Society loans D. None of the above
Q25. RBI sees that the banks give loans not just to profit-making businesses and traders but also to………..?
A. Cooperatives B. Small scale industries & small borrowers C. SGH D. All of the above
Q26. According to the information given on formal and informal loans how much of a loan is taken by the rich
household from informal sources?
A. 40% B. 5% C. 10% D. 20%
Q27. Grameen Bank of Bangladesh is one of the biggest success stories, in 2018 it had over …. million members in
about 81,600 villages.
A. 8 B. 10 C. 7 D. 9
Q28. In situations with high risks, credit might create further problems for the borrower, what is it called?
A. Absence of collateral B. Debt trap C. Debit D. Demand deposits
Q29. What is the aim of the loans sanctioned to SHG?
[Link] industries B. To establish fisheries C. create self-employment opportunities D. agricultural development
SHORT answer questions
Question [Link] issues currency notes on behalf of the Central Government in India? (2011 D)
Answer:Reserve Bank of India.
Question [Link] do banks ask for collateral while giving credit to a borrower? (2014 D, 2011 OD)
Answer:Collateral is an asset that the borrower owns (land, building, vehicle, livestock, land documents, deposits with
banks, etc.) which stands as a security against the money borrowed. In case the borrower fails to repay the loan, the
lender has the right to sell the asset or collateral.
Question [Link] do banks do with the deposits they accept from customers? (2012 D)
Answer:A % of deposits are kept with RBI as Cash Reserve ratio, another % is kept by Banks in cash form as
Statutory Liquidity and rest portion of deposits are used to extend loans to people.
Question [Link] comprises ‘terms of credit’? (2012 OD)
Answer:Interest rate, collateral and documentation requirement and mode of repayment together comprise terms of
credit.
Question [Link] is the main informal source of credit for rural households in India? (2013 D)
Answer:Money lenders, landlords are the main source of informal credit for rural households.
Question [Link] body supervises the functioning of formal sources of loans? (2013 OD)
Answer:Reserve Bank of India.
Question 7.‘Modern currency is without any use of its own’; then why is it accepted as a medium of exchange? (2014)
Answer:Modern currency is accepted as a medium of exchange because it is certified for a particular denomination
(?10, ?100, etc.) of the country by authorities set up by the Central Government. It is issued by the Reserve Bank of
India and it can be used for buying any commodity which is on sale. It is authorized by the government of the country.
Question [Link] is the meaning of ‘barter system’? (2015 D)
Answer:Barter system refers to the system of exchange of goods and services. It is the system by which one
commodity is exchanged for another without the use of money. Before money was introduced, people practised barter
[Link]: A farmer could buy a dhoti from a weaver or a pair of shoes from a cobbler in exchange of grains he
produced.
Question [Link] is the meaning of ‘investment’? (2015 D)
Answer:Investment is buying of an asset in the form of a factory, a machine, land and building, etc. (physical assets)
or shares (monetary assets) for the purpose of making or sharing profits of the enterprises concerned.
Common investments are—buying land, factories, machines for faster production, buying small local companies to
expand production, cheap labour, skilled engineers, IT personnel, etc.
Question [Link] is meant by double coincidence of wants? (2015 OD)
Answer:Double coincidence of wants means when both parties have agreed to sell and buy each other’s commodities.
Question [Link] does money act as a medium of exchange? (2015 OD)
Answer:Money acts as a medium of exchange as it acts as an intermediate in the exchange process and transactions. A
person holding money can easily exchange it for any commodity or services that he or she might want.
Question [Link] do the deposits with banks become their source of income? (2016 D)
Answer:Banks charge a higher interest rate on loans they extend than what they offer on deposits. The difference of
interest is the main source of income of banks.
Question [Link] one cannot refuse a payment made in rupees in India? (2016 D)
Answer:One cannot refuse a payment made in rupees in India because it is accepted as a medium of exchange. The
currency is authorized by the government of the country.
Question [Link] formal sector loans with informal sector of loans regarding interest only. (2016 D)
Answer:Most of the informal lenders charge a much higher interest on loans than the formal sector loAnswer:
Question [Link] is the supervision of the functioning of formal sources of loans necessary? (2016 OD)
Answer:Supervision of the functioning of formal sources of loans is necessary because banks have to submit
information to the RBI on how much they are lending, to whom they are lending and at what interest rate etc.
Question [Link] with an argument that there is a great need to expand formal sources of credit in rural India. (2016)
Answer:There is great need to expand formal sources of credit in rural India because:
1. There is no organisation that supervises the credit activities of lenders in the informal sector. They lend
at whatever interest rate they choose.
2. No one can stop rural money-lenders from using unfair means to get their money back.
Question [Link] are most of the poor households deprived from the formal sector of loans? (2016 OD)
Answer:Most of the poor households are deprived from the formal sector loans because of lack of proper documents
and absence of collateral.
Question [Link] do you understand by demand deposits?
Answer:To ensure safety of their money, people deposit their money with banks. Banks accept deposits and pay
interest on deposits. People have the provision to withdraw their money as and when they require. Since money can be
withdrawn on demand, these deposits are known as demand deposits.
Features:
1. A demand deposit has the essential characteristic of money. It can be used as a medium of exchange.
2. The facility of cheques against demand deposits makes it possible to make payments, without using
cash.
3. Since demand deposits are accepted widely as a means of payment along with currency, they constitute
money in the modem economy.
Question [Link] country has successfully organized SHGs? Who had initiated the programme?
Answer:Bangladesh has successfully organized SHGs. Grameen Bank of Bangladesh is the biggest success story in
reaching the poor to meet their credit needs at reasonable rates. Grameen Bank has now over 6 million borrowers in
40,000 villages across Bangladesh. Most of the borrowers are women and belong to the poorest section of society.
This idea is the brain child of Prof. Mohammad Yunus, recipient of 2006 Nobel Prize for Peace.
Question [Link] the inherent problem in double coincidence of wants. (2017 D)
Answer:Double coincidence of wants means that when someone wants to exchange his goods with another person, the
latter must also be willing to exchange his goods with the first person. It can only work when both the persons are
ready to exchange each other’s goods.
Question [Link] does the use of money make it easier to exchange things? Give an example. (2017 OD)
Answer:The use of money solves the problem of double coincidence of wants. Money acts as a medium of exchange
and serves as a unit of value.
Short Answer Questions (SA) 3 Marks
Question 22.
What is money? Why is modern money currency accepted as a medium of exchange? (2012 D)
Answer:
Money is a medium of exchange in transactions. A person holding money can easily exchange it for any commodity
or service that he or she might want.
Modem money currency is accepted as a medium of exchange because
• it is certified for a particular denomination (For example, ₹ 10, ₹ 20, ₹ 100, ₹ 1,000).
• it is issued by the Central Bank of the country.
• it is authorized by the government of the country.
Question [Link] are the modern forms of money? Why is the ‘rupee’ widely accepted as a medium of exchange?
Explain two reasons. (2013 D)
Or
Why is modern currency accepted as a medium of exchange without any use of its own? Give reasons?
Answer:Modem forms of money currency in India include paper notes and coins which are known as Rupees and
Paise.
1. It is accepted as a medium of exchange because the currency is authorized by the Government of India.
2. In India, the Reserve bank of India issues currency notes on behalf of the Central Government of India.
3. The law legalizes the use of rupee as a medium of payment that cannot be refused in settling
transaction in India.
4. No Individual in India can legally refuse a payment made in rupees.
Therefore, the rupee is widely accepted as a medium of exchange.
Question [Link] is collateral? Why do lenders ask for collateral while lending? Explain. (2012)
Answer:Collateral is an asset that the borrower owns (land, building, vehicle, livestock, land documents, deposits with
banks etc.) which stands as a security against the money borrowed. In case the borrower fails to repay the loan, the
lender has the right to sell the asset or collateral to recover the loan money. Most lenders ask for collateral while
lending as a security against their own funds.
Question 25.“Cheap and affordable credit is essential for poor households both in rural and urban areas.” In the light
of the above statement explain the social and economic values attached to it. (2013 OD)
Or
“Cheap and affordable credit is crucial for the country’s development.” Assess the statement. (2016 D)
Or
‘Credit has its own unique role for development’. Justify the statement with arguments. (2016 OD)
Answer:Answer: It refers to an agreement in which the lender supplies the borrower with money, goods or services in
return for the promise of future repayment.
1. Cheap and affordable credit is crucial for the country’s growth and economic development. Credit is in
great demand for various kinds of economic activities—big or small investments, to set up business,
buying cars, houses, etc.
2. In rural areas credit helps in the development of agriculture by providing funds to farmers to buy seeds,
fertilizers, expensive pesticides.
3. Manufacturers need credit for buying raw material or to meet ongoing expenditure of production.
Credit helps in the purchase of plant, machinery, equipment, etc.
4. Some people may need to borrow for illness, marriages etc.
Thus, cheap and affordable credit is crucial for the country’s growth and economic development.
Question [Link] does money solve the problem of double coincidence of wants? Explain with an example. (2014 D)
Answer:Money acts as a medium of exchange. Money can be exchanged for any kind of commodity or service of
one’s choice or need. Before money was introduced, people practised barter system. They exchanged goods with each
[Link], A farmer could buy a dhoti from a weaver or a pair of shoes from a cobbler in exchange of grains he
produced.
The problem with the barter system was that both the parties had to agree to sell and buy each other’s product. This is
known as double coincidence of wants.
In barter system, where goods are directly exchanged without the use of money, it is essential that there is a double
coincidence. Double coincidence is a situation where two persons need or desire to have each other’s product.
Money solves this problem as with money we can buy whatever we want and whenever we want, without having to
exchange something in return.
Question [Link] is money used in everyday life? Explain with examples. (2014 D)
Answer:1. Money plays a central role in our daily life. It is used as a medium of exchange to carry out transactions.
[Link] buys us food, clothing, shelter and other basic necessities of life.
[Link] provides us social security. It is needed to procure services like transport, education, healthcare,
entertainment, recreation, and so on. Money facilitates business and trade and is the basis of the working of an
economy.
Question [Link] with examples, how people are involved with the banks. (2014 D)
Answer:
1. Banks help people to save their money and keep their money in safe custody of the bank. Banks accept
deposits from the public and also help people to earn interest on their deposits.
2. People can withdraw the money deposited with the bank at the time of their need. As the money can be
withdrawn on demand, these are called demand deposits.
3. Banks also grant loans to people for a variety of purposes. In times of need individuals, business houses
and industries can borrow money from the banks.
Question [Link] is it necessary for the banks and cooperative societies to increase their lending facilities in rural
areas? Explain. (2015 D)
Answer:Banks and Cooperatives can help people in obtaining cheap and affordable loans. This will help people to
grow crops, do business, set up small-scale industries or trade in goods and also help indirectly in the country’s
development. They should do so, so that relatively poor people do not have to depend on informal sources of credit
(money-lenders).

Question [Link] can money be easily exchanged for goods or services? Give an example to explain. (2016 D)
Answer:Money as a medium of exchange for goods and services:
A person holding money can easily exchange it for any commodity or service that he or she might want. Everyone
prefers to receive payments in money and exchange the money for things they want.
For example: A shoemaker wants to sell shoes in the market and buy wheat. The shoe maker will first exchange shoes
for money and then exchange the money for wheat. If the shoemaker had to directly exchange shoes for wheat without
the use of money, he would have to look for a wheat growing farmer who not only wants to sell wheat but also wants
to buy the shoes in exchange. Both the parties have to agree to sell and buy each other’s commodities. This process is
very difficult, time consuming and unhealthy.