Here you will find all the questions, answers, notes, and solutions of chapter 16 Money and Financial System of Social Science for class 10 for students studying under Nagaland Board of School Education (NBSE). However, the study materials should be used only for references and nothing more. The notes can be modified/changed according to needs.
Summary
Money is a part of our daily life. All people want money but only a few can define it. If you ask somebody ‘what is money?’, he will probably say ‘it is cash’, or may say ‘it is whatever you have got in your bank account’. Cash or the amount in a bank is not the definition of money but at the most an alternative expression of money. Money does not do anything by itself. It is just a piece of paper or is simply an entry into your bank account. Money does not satisfy human wants directly. It satisfies wants indirectly only when it is spent. Money is not wanted for its own sake but for the things, it will buy.
In this chapter, you will get a more accurate understanding of money, how money makes transactions easy, the different institutions to borrow money from (credit) and what are the advantages and disadvantages that each of these institutions has.
Textual questions and answers
Multiple Choice Questions
1. Majority of the credit needs of the poor households are met from
(a) Formal sources (b) Informal sources (c) Self-Help groups (d) All of these
Answer: B. Informal sources
2. Which of the following is not a modern form of money?
(a) Paper notes (b) Demand deposits (c) Silver coins
Answer: C. Silver coins
3. Read the following statements – Assertion (A) and Reason (R). Choose one of the correct alternatives given below.
Assertion (A): The problem of double coincidence of wants was a major drawback of barter system.
Reason (R): Barter system involves exchange of goods and services.
(a) Both the Assertion (A) and Reason (R) are true, and the Reason is a correct explanation of the Assertion.
(b) Both the Assertion and Reason are true, but the Reason is NOT a correct explanation of the Assertion.
(c) The Assertion is true, but the Reason is false.
(d) The Assertion is false, but the Reason is true
Answer: B. Both the Assertion and Reason are true, but the Reason is NOT a correct explanation of the Assertion.
4. A woman in a village takes a loan from a local moneylender to pay for her child’s education. She repays the loan with high interest over time. What type of credit source is this woman using?
(a) Formal credit (b) Informal credit (c) International credit (d) Government credit
Answer: B. Informal credit
5. In ancient times, people used cattle, grain, and other commodities as a medium of exchange. What term best describes this form of money?
(a) Barter system (b) Commodity money (c) Fiat money (d) Digital currency
Answer: B. Commodity money
Very Short Answer Questions
1. What was the main difficulty of barter system?
Answer: The main difficulty of the barter system was the requirement for a double coincidence of wants.
2. Define money.
Answer: Money is defined as anything that is generally accepted as a means of exchange and simultaneously acts as a measure and a store of value.
3. Name the two categories of financial institutions.
Answer: The two categories of financial institutions are: (1) Formal Financial Institutions and (2) Informal Financial Institutions.
4. Define credit.
Answer: Credit refers to an agreement between a lender and a borrower, involving the exchange of money, goods, or services for a promise of future payment.
Short Answer Questions
1. Mention the two functions that a financial institution must perform to become a commercial bank.
Answer: The two essential functions that a financial institution must perform to become a commercial bank are:
(a) Acceptance of demand deposits that have cheque facilities.
(b) Lending.
Long Answer Questions
1. State any three advantages of formal sector loans.
Answer: Three advantages of formal sector loans are:
(i) Loans from banks and co-operatives are relatively much cheaper’ Interest rate remains around 8 to 12% per annum.
(ii) Mode of repayment of loan is very easy.
(iii) Formal credit saves the borrower from falling into a debt trap.
2. What is double coincidence of wants? Why it is not required in an economy where the money is in use?
Answer: The barter system requires a double coincidence of wants. A seller has to find someone who wants to buy what he has, but the buyer must also have what the seller wants.
Money eliminates the need for double coincidence of wants. It is no longer necessary for the person who possesses produces rice to look for a sugar producer who will buy his rice and at the same time sell him sugar. All he has to do is to find a buyer of his rice in the market. Once he sells his rice for money, then he can purchase sugar or any other commodity from the market. Since money acts as an intermediate in the exchange process, it is called a medium of exchange.
3. Describe the evolution of money as a medium of exchange.
Answer: Currency notes and coins are the modern forms of money. But we find that money had appeared in different forms before taking the final form as we see it today. The historical origin of money can be traced back to the barter system that existed in the olden days. In the initial stages, money took the form of commodity money. Due to several disadvantages of commodity money, precious metals like gold, silver, copper etc. began to be used as money. But on account of its bulkiness and safety, they were discontinued and led to the introduction of paper money. Nowadays, the issue of paper money is the sole monopoly of the central bank of a country.
4. List any four non-institutional (informal) sources of finance in India. Why do poor households in India still depend on informal sources of credit?
Answer: Four non-institutional (informal) sources of finance in India are chit funds, private finance companies, moneylenders, traders.
The poor households are still dependent on informal sources of credit. It is because banks are not found everywhere in rural areas and bank loans require proper documentation and collateral. Lack of collateral is perhaps the major reason which prevents poor households from availing of bank loans. Further, local moneylenders remain willing/ready to offer loans without security. The borrower can approach the moneylender even in the state of non-payment of an earlier loan.
5. Describe the functioning of SHGs in India.
Answer: A Self Help Group (SHG) has 15-20 members belonging to one neighbourhood and they are formed with the objective of helping poor borrowers overcome the problem of lack of security. The members of the group meet and save regularly. They save from Rs 25 to 100 or more per member. Members can avail small loans from the group to meet their needs. The group charges a reasonable rate of interest. If the SHG is regular in its savings, it becomes eligible for bank loans. The SHG decides regarding loans – the purpose and amount, interest rate, mode of repayment etc. It is the group which is responsible for the repayment of the loan.
Extra/additional MCQs
1. Barter system involves exchange of:
A. Goods for money B. Goods for goods C. Services for money D. Services for services
Answer: B. Goods for goods
30. Exchanging goods or services without using money is called:
A. Barter system B. Credit system C. Monetary system D. Financial system
Answer: A. Barter system
Extra/additional questions and answers/solutions
1. What is the Latin word from which the word ‘money’ is derived?
Answer: The word ‘money’ is derived from the Latin word ‘Moneta’.
29. How do Self-Help Groups (SHGs) help poor borrowers overcome the problem of lack of security?
Answer: Poor people organize themselves into Self-Help Groups (SHGs) and pool their savings. Usually, a SHG has 15 to 20 members belonging to one neighborhood. The members of the group meet and save regularly. They save from ₹25 to ₹100 or more per member. Members can avail small loans from the group to meet their needs. The group charges a reasonable rate of interest, which of course is much lower than what the local moneylender charges. If the SHG is regular in its savings, it becomes eligible for bank loans. Bank loan is sanctioned in the name of the SHG which is meant for creating self-employment opportunities for the members.
The SHG decides regarding loans, the purpose and amount, interest rate, mode of repayment, etc. It is the group which is responsible for the repayment of the loan. If any member of the group is not repaying the loan amount as scheduled, the case will be seriously taken up by other members in the group. It is because of this feature of an SHG that banks are willing to lend to the poor organized in the SHGs. They do not ask even for collateral from the SHGs. In this way, SHGs help poor borrowers overcome the problem of lack of security.
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