Money and Credit Class 10 Questions and Answers KSEEB 10th Social Science
I. Fill in the. blanks with suitable answers
Question 1.
Barter is exchange of goods for ___________________
Answer:
goods
Question 2.
Cheque is a ___________________ form of money.
Answer:
paper
Question 3.
The Reserve Bank of India was established in the year ___________________
Answer:
1935
Question 4.
The currency of Japan is ___________________
Answer:
Yen
Question 5.
Government of India nationalized 14 commercial Banks in ___________________
Answer:
1969
Question 6.
Narrow money comprises of ___________________ and ___________________
Answer:
Notes, Coins
Question 7.
Inflation occurs when supply of money is ___________________ than the availability of goods and services in a country.
Answer:
higher
II. Answer the following questions.
Question 1.
What is Barter System?
Answer:
The exchange of goods for goods without the use of money is called Barter System.
Question 2.
Explain the meaning and functions of money.
Answer:
Money is anything which is widely accepted in Payments for goods or in discharge of other business obligations’ – Robertson (English Economist)
We can buy goods and services using money because it is a commonly accepted means of payment; measure;, and store of value.
Functions of money.
Primary or main functions: The important primary functions of money are:
(a) Medium of exchange or means of payment: Money is used for selling and buying goods and making corresponding payments.
(b) Measure of Value: The prices of all goods and services are expressed in terms of money only. This makes it easier to determine the value of goods and services with a common unit.
Secondary functions: The important secondary functions of money are
(a) Standard of deferred payments: They ease the future transactions too. A borrower is under an obligation to pay a specified sum of money on a specified future date. Similarly, a person buys now agrees to pay a stated amount of money on a future date. Use of money facilitates such future payments.
(b) Store of value: Since the future value is assured, money has made it possible to save or store wealth for future and help in its accumulation,
(c) Transfer of value: The introduction of money has made the exchange of goods to distant places possible. The ease of transferring purchasing power from person to. person and place too has expanded trade and commerce.
Question 3.
Explain the functions of RBI Functions of RBI
Answer:
1. Monopoly of Note issue: RBI has the monopoly of issuing currency notes of Rs. 2-and above, namely Rs. 5, Rs. 10, Rs. 20, Rs. 100, Rs. 200 Rs. 500 and Rs. 2000. One Rupee is issued and circulated buy RBI on behalf of the Central Government.
2. Banker to Government: The RBI accepts the deposits of Central and State Government, collects money (like taxes and other charges) and also makes payments on behalf of the Government. It issues Government bonds, Treasury bills and also acts as financial adviser to the Government. RBI also extends loans advances to central and state governments as and when necessary.
3. Banker’s bank: It also acts as the bank for all banking institutions in the country. All. the banks of the country have to keep a predetermined part of. their deposits as reserves with the RBI. Whenever banks need additional money RBI provides credit to them. It regulates the activities of the banks and guides them in monetary managements.
4. National Clearing House : RBI acts as the clearing house for settlement of transactions across banks. This functions helps banks to settle their inter banks claims easily.
5. Controller of credit: The RBI regulates the amount of credit issued by the banks, according to the monetary situation of the country.
6. Custodian of Foreign Exchange Reserves: The RBI also the custodian of foreign exchange reserves of the country through which it manages the foreign exchange rates. In order to reduce the fluctuations in exchange rate, it resorts to buying and selling of foreign currencies.
7. Promotion of. Banking Habits: The RBI promotes saving through branch expansion of the banking system in unbanked areas and financial literacy programmes.
RBI has been playing an important role in framing the development strategy of Indian Economy, It has a rich tradition of data collection, generating useful economic research, and knowledge sharing. The Reserve Bank’s measures have helped the nation to withstand many financial crises.
Question 4.
Explain the various concepts of money supply used in India
Answer:
In India, four measure of money supply are used to measure the monetary stock, viz., Ml, M2, M3 and M4, They are defined as follows:
Ml = currency notes and coins A net demand deposits held in commercial banks:
M2 =M1 + Savings deposits with Post Office savings Banks;
M3 = M1 + Net time deposits of commercial bank; and
M4 = M3 + Total deposits with Post Office savings banks.
For the purpose of monetary . management, M1 and M2 are referred ‘ to as narrow money, and M3 and M4 10th Std. Social Science as broad money.
Apart from this money supply, the banks engage in credit creation which adds to the total money available in the economy. This money supply and the available supply of goods and services, affects the demand for them and therefore, their prices. Thus, a higher supply of! money without concomitant supply of goods would lead to a situation of inflation nor a period of rising prices.
Mild increase in prices is like tonic to the economy, but if the same is very rapid or high, it is not good for economic growth. It affects the purchasing power of individuals and income distribution in the country, the sentiments of investors, and the overall investment.
In order to regulate the price situation, the RBI varies the supply of currency. It also regulates the credit lending by banks through certain measures. The measures taken to regulate credit, overall money supply in the economy and interest rates are together called as the Monetary Policy.
Question 5.
Discuss the various credit control methods adopted by RBI
Answer:
Credit control Measures: These are broadly classified into two types, namely
(a) quantitative control measures, and
(b) qualitative or Selective control measures
A. Quantitative control measures: The quantitative credit control measures directly affect the quantity or money available to the business and people. They comprise of the following:
1. Bank Rate Policy: The bank rate is the rate at which the RBI lends funds to banks. This affects the are at banks can lend to its borrowers. Higher the bank rate, lower the credit creation and vice-versa. RBI also varies the Repo Rate and reverse Repo Rate affecting the interest rate on short term borrowings and deposits, respectively, by the commercial banks, thereby affecting their capacity to lend.
2. Open Market Operations: Open market operation is the buying and selling of government securities by the central bank from and to the banks. The sale of government securities to banks reduces their reserves and vice-versa.
3. Varying Reserve Requirement (Legal Reserve Ratio): Banks are obliged to maintain reserves the central bank in two accounts. One is the Cash Reserve Ratio (CRR) and the other is Statutory Liquidity Ratio (SLR). The ratio of their deposits, which the banks are required to keep with RBI, is the CRR. The minimum cash which the banks have to keep with themselves as a ratio of their deposits is the SLR. By varying these and SLR and RBI can vary the lending capacity of banks.
B. Qualitative or selective control measures:
The qualitative of selective control measures affect the usage of credit for different purpose. They affect the quality of usage of credit. Important qualitative instruments of credit control are:
1. Change in lending margins: Collateral security is required for obtaining any loan. The percentage value of the security required to be kept with the bank for getting loan is called as the margin. Margin against a particular security is reduced or increased in order to encourage or of discourage the flow of credit to a particular sector.
2. Ceiling on credit or credit rationing: The RBI fixes maximum amount of credit given to a particular use or sector. The rationing of credit is done to prevent excessive expansion of credit.
3. Moral suasion: Moral suasion is , a method of persuading the Commercial banks to advance the credit or reduce the credit to certain activities, The RBI does this through periodical letters and circulars to the banks.
4. Direct Action: Direct control consists of the measures taken by the central bank against commercial banks and financial institutions when all other methods prove ineffective.
Additional Questions and Answers
Question 1.
Explain the evolution of Paper money ?
Answer:
The metallic coins were unsafe to carry from one place to another. Therefore, traders began to carry the written documents issued by well known financiers as evidence of the quantity of money at their command. The written documents were not actual money, but were accepted and exchanged for money. When such documents were issued by governments, they were called as ‘promissory notes’ or currency. Later on the central banks established by the governments started printing notes that had the guarantee of the government.
This paper money became legal tender that is the legally acceptable money. No individual can refuse the legal tender in that respective country. The legal tender is called as Rupee in India; Dollar in the USA; Pound in England; Euro in Europe; Yen in Japan; Yuan in China, etc.
Question 2.
What are the advantages of Banking money?
Answer:
As trade and commerce flourished bankers started issuing instruments for still easy transaction. Cheques, drafts, deposit (Credit) receipts etc., thus, came to be used as money. These help inn transactions as well as transfer of money between persons and places.
Question 3.
What is e-money?
Answer:
Money transactions done through electorate means is called e-money.
Question 4.
What are the advantages of using plastic money?
Answer:
Credit cards and debit cards issued by various banks are referred to as plastic money. The use of these cards has made transactions and transfer of money easier. The need for carrying large amount of cash does not arise at all. Moreover we can withdraw our money from the nearest ATM, whenever We require money.
Question 5.
What is a Ranking Company’?
Answer:
‘Banking’ is defined as ‘Accepting; for the purpose- of lending or investment of deposits of money from the public repayable or otherwise withdrawable by cheque, draft, order or otherwise.’
Question 6.
What does, the term ’Banking’ mean?
Answer:
‘Banking’ is defined as Accepting; for the purpose of lending or investment pf deposits of money from the public repayable or otherwise withdrawable by cheque, draft, order or otherwise.
Question 7.
Discuss the importance of Banks
Answer:
Banks play an important role in economic development. They mobilize the savings of the public and make these available for investors, thereby helping the process of capital formation. Banks provide a convenient way of remittance (transfer) or money through the accounts of the customers. Banks offer higher rates of interest on fixed deposits.
They give loans to the borrowers at lower rates of interest. They also discount the bills of exchange. They lend money to agriculture, industry and service activities for their development. They issue demand drafts, credit, cards, debit cards. The banks also invest the funds on securities of the government.
Question 8.
Why is there a need to regulate, money supply?
Answer:
Currency notes and coins issued by the monetary authority of the country form the money supply in a country at any given -time. Apart from currency notes and coins, the balance in sayings or current account deposits is also considered as money. Because these savings can be withdrawn at short notice and the bank is liable to pay it on demands, they are called as demand deposits. Other deposits having a fixed period maturity are called as time deposits. The currency and demand deposits forms the total money in circulation with the public at any point of time.
Multiple Choice Questions and Answers
Question 1.
‘Exchange of goods for goods without the use of money is
(a) Banking
(b) Barter
(c) credit
(d) debit
Answer:
(b) Barter
Question 2.
The ‘Legal Gender’ in India is
(a) Rupee
(b) Yen
(c) Dolar
(d) Yawn
Answer:
(a) Rupee
Question 3.
The ________________ of all goods and services are expressed in terms of money.
(a) Quantity
(b) Quality
(c) value
(d) fineness
Answer:
(c) value
Question 4.
Reserve Bank of India was established in the year
(a) 1932
(b) 1933
(c) 1934
(d) 1935
Answer:
(d) 1935
Question 5.
Rupee note is circulated by RBI on behalf of the Government of India
(a) Thousand rupees
(b) Two hand rupees
(c) ten rupees
(d) one rupee
Answer:
(d) one rupee
Question 6.
The rate at which RBI Sends money to its client against Gov¬ernment securities is
(a) Reverse Repo Rate
(b) Repo rate
(c) Cash reserve ratio
(d) legal reserve ration
Answer:
(b) Repo rate
Question 7.
The minimum cash which banks have to keep with themselves as a ratio of their deposits is
(a) Statutory liquidity ratio
(b) Cash reserve ratio
(c) Legal reserve ratio
(d) Collateral security
Answer:
(a) Statutory Liquidity Ratio