Money And Credit


Q) What is the main function of money?

Answer: It acts as a medium of exchange, allowing people to easily trade goods and services without bartering directly.


Q) What were some early forms of money? 

Answer: Grains, cattle, and even metallic coins like gold, silver, and copper were used before modern currency.


Q) What is the modern form of money? 

Answer: Currency notes and coins issued by a government, not backed by precious metals and without inherent value.


Q) Why is currency accepted as money? 

Answer: Because it's authorized by the government and has legal tender status, meaning it must be accepted for transactions within the country.


Q) What happens to people's extra cash? 

Answer: They often deposit it in banks for safekeeping and to earn interest.


Q) What are demand deposits? 

Answer: Money deposited in bank accounts that can be withdrawn on demand, acting as another form of money similar to currency.


Q) How are payments made through cheques? 

Answer: Cheques instruct banks to transfer money from the payer's account to the payee's, facilitating cashless transactions.


Q) What do banks do with the money they receive as deposits? 

Answer: They keep a small portion as cash and lend the rest to people and businesses who need loans.


Q) What is credit? 

Answer: An agreement where a lender provides money, goods, or services in exchange for future payment from the borrower.


Q) How can credit be beneficial? 

Answer: It can help individuals meet working capital needs, invest in businesses, or increase earnings through productive activities.


Q) What is a debt trap? 

Answer: A situation where credit leads to increasing debt and financial hardship for the borrower, often due to high interest rates or crop failures.


Q) What are the two main types of credit sources? 

Answer: Formal sector loans from banks and cooperatives, and informal sector loans from moneylenders, friends, or family.


Q) Which sector provides most of the credit needs in rural areas? 

Answer: Informal sources, with formal banks and cooperatives meeting only half the demand.


Q) Why is it important to expand formal sector credit? 

Answer: It offers cheaper interest rates and reduces dependence on expensive informal loans, potentially impacting income and development.


Q) What are Self Help Groups (SHGs)?

Answer: Groups of rural women who pool their savings and provide loan support to each other, overcoming their lack of collateral for formal bank loans.