Money and Banking

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Here are the notes/solutions/answers to the questions for Political Science and Economics (social science) chapter 1 Money and Banking of class 10 (HSLC) for students studying under the Board of Secondary Education, Assam (SEBA). These notes/answers, however, should only be used for references and modifications/changes can be made wherever possible.

Introduction to the chapter Money and Banking: The evolution of money is an intriguing story. Money cannot be any commodity or substance. Certain characteristics must be present in money. Money can perform certain functions as a result of these characteristics. There are various types of money. Money is very important in the economic system. Money has eliminated the drawbacks of the barter system. Of course, money has its own set of issues. Money is created by the banking system. The Central Bank is in charge of all banks. The Reserve Bank of India is the country’s central bank. There are various types of banks, each with its own set of functions. Certain financial institutions exist outside of the country’s banking system. These are referred to as Non-Banking Financial Institutions (NBFIs) or Intermediaries. There are distinctions between banks and non-bank financial institutions.

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Very short answer type questions of Money and Banking

1. What is barter?

Answer: Barter is the direct exchange of commodities against commodities.

2. What is money?

Answer: According to Geoffrey Crowther anything that is generally acceptable to one and all as a medium of exchange is money.

3. Mention one important function of money.

Answer: One important function of money is money performs the function of a medium of exchange.

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7. In which year was the Reserve Bank of India set up? 

Answer: The Reserve Bank of India was set up in 1935.

8. What is a current deposit?

Answer: Current deposit or savings is that kind of deposit that may be withdrawn by the depositor or saver at any time.

Short answer type questions of Money and Banking

1. How does the lack of double coincidence of wants create problems in the barter system?

Answer: The barter system is hampered by the double coincidence of wants. There will be no commodity exchange if one individual does not produce or has the commodity that the other individual desires. For example, if a person wants rice in exchange for sugarcane, but the other person with whom he is supposed to barter does not have rice, but instead has fish. Problems will arise in the barter system as a result of this.

2. What is meant by the store of value?

Answer: Value for goods and services is referred to as a store of value. Value is stored up in the sense that commodities are stored up so that the stored up commodity can be exchanged against other commodities as and when such a transaction is required. Some commodities, such as cloth and rice, have a higher store of value because they do not perish in a short period of time because they are stored up. Commodities such as eggs and fish, on the other hand, perish faster and have a lower store of value.

3. Which characteristic of money is the most important one and why?

Answer: The most important characteristic of money is Money must have general acceptability. This is the most important feature because general acceptability means acceptance by all. It is supported by the law of the land.

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7. What are the functions of Regional Rural Banks? 

Answer: The functions of Regional Rural Banks are:

i. To provide low-interest loans to the villagers and free them from the clutches of private money lenders who charge exorbitant interest rates.
ii. Mobilizing rural savings and investing them in a variety of productive activities.

8. How are the Non-Banking Financial Institutions different from the banks?

Answer: There are two main differences between Banks and Non-Banking Financial Institutions (NBFI):

i. Depositors in banks can withdraw funds via check; depositors in non-banking financial institutions cannot.
ii. There is a Deposit Insurance Scheme in place to protect depositors in the case of banks; such schemes do not exist in the case of non-banking financial institutions.

Long type questions of Money and Banking

1. Explain four demerits of the barter system.

Answer: Four demerits of the barter system are explained below:

i. Lack of double coincidence of wants: When there is a lack of double coincidence of wants, the barter system does not work. For example, suppose a person wants rice in exchange for sugarcane, but the other person with whom he is supposed to barter does not have rice but instead has fish. As a result, a problem will arise in the barter system.

ii. It lacks a common unit of account: The value of each commodity in the barter system must be expressed in terms of the value of another commodity. For instance, one apple is exchanged for three mangoes. Similarly, for other commodities to be exchanged in the market, it is impossible for the consumer to remember the various exchange rates.

iii. Indivisibility: When commodities are indivisible, the barter system is rendered ineffective. A piece of bread, for example, cannot be exchanged for an elephant. Because the elephant’s rate is much higher than the rate of bread, and the elephant is also not divisible. As a result, only the barter system works in the case of divisible items.

iv. It lacks a store of value of goods and services: Value is stored up in the barter system in the sense that the stored up commodity can be exchanged against other commodities as and when such a transaction is required. However, the issue is that commodities are perishable. Some perish sooner, such as eggs and fish, while others perish later, such as clothes and rice.

2. Explain any four characteristics of money.

Answer: Four characteristics of money are explained below:

i. Money must be widely accepted: Money must be widely accepted as a medium of exchange.
ii. Money must be cognizable: There should be no difficulty identifying money. Transactions will be difficult if money is not easily identifiable.
iii. Money must be durable: Because perishable commodities such as fish and eggs are perishable, they cannot be used as money. Money cannot be saved if it is perishable. There will be no store of value in that case, and saving will be impossible.
iv. Money must be divisible: High-value money must be convertible into low-value money. There is enough money to settle transactions of any size, large or small.

3. Explain four major functions of money.

Answer: Four major functions of money are explained below:

i. Money performs the function of a medium of exchange: Commodities are exchanged indirectly through money in a money economy. The person who produces rice will sell rice (the first transaction), and the money earned will be used to purchase cloth (second transaction). As a result, money becomes the medium of exchange.

ii. Money acts as a standard of measurement of values of goods and services: Prices exist for all economic goods. Price is the value in exchange expressed in terms of money. Money is the most widely used unit of measurement. Prices are the only way to express the value of all economic goods and services.

iii. Money acts as a standard of deferred payments: Deferred payments are payments made later rather than at the time the product or service is delivered to the customer. It accepts commodities on credit. All such payments are accounted for in monetary terms.

iv. Money functions as the store of value: Commodity money cannot be saved because it is not durable. Saving in the form of commodity money is not possible. One of the characteristics of money is its durability. Money can be used to store the value of goods and services.

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8. Briefly explain any two functions of each of the following:

(i) IDBI
(ii) RRBs
(iii) NABARD
(iv) SIDBI

Answer: (i) IDBI: IDBI stands for Industrial Development Bank of India. Two functions of IDBI are:

i. IDBI provides industrial loans at a low-interest rate to businesses in underserved areas of the country.
ii. The IDBI promotes entrepreneurship through a variety of training programmes.

(ii) RRBs: RRB stands for Regional Rural Banks. The following are two functions of RRBs.

i. To provide low-interest loans to the villagers and free them from the clutches of private money lenders who charge exorbitant interest rates.
ii. Mobilizing rural savings and investing them in a variety of productive activities.

(iii) NABARD: NABARD stands for National Bank for Agriculture and Rural Development. Two main functions of NABARD are:

i. NABARD is the apex financial institution among all institutions involved in rural investment and production.
ii. NABARD simplifies the loan application process, monitors and evaluates the progress of various rural schemes, and organises training programmes for beneficiaries.

(iv) SIDBI: SIDBI stands for Small Industrial Development Bank of India. Two main functions of SIDBI are:

i. To encourage the modernization and application of advanced technology in small businesses.
ii. To develop markets for the products of small businesses.

Click here for the notes of other chapters of SEBA class 10 Political Science and Economics


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