Chapter 3 Solutions — Money and Credit

Exercises

1. 1.
   In situations with high risks, credit might create further problems for the borrower. Explain.
2. 2.
   How does money solve the problem of double coincidence of wants? Explain with an example of your own.
3. 3.
   How do banks mediate between those who have surplus money and those who need money?
4. 4.
   Look at a 10 rupee note. What is written on top? Can you explain this statement?
5. 5.
   Why do we need to expand formal sources of credit in India?
6. 6.
   What is the basic idea behind the SHGs for the poor? Explain in your own words.
7. 7.
   What are the reasons why the banks might not be willing to lend to certain borrowers?
8. 8.
   In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?
9. 9.
   Analyse the role of credit for development.
10. 10.
    Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.
11. 11.
    In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.

    • (a) Why might banks be unwilling to lend to small farmers?
    • (b) What are the other sources from which the small farmers can borrow?
    • (c) Explain with an example how the terms of credit can be unfavourable for the small farmer.
    • (d) Suggest some ways by which small farmers can get cheap credit.
12. 12.
    Fill in the blanks:

    • (i) Majority of the credit needs of the _________ households are met from informal sources.
    • (ii) _________ costs of borrowing increase the debt-burden.
    • (iii) _________ issues currency notes on behalf of the Central Government.
    • (iv) Banks charge a higher interest rate on loans than what they offer on _________.
    • (v) _________ is an asset that the borrower owns and uses as a…
13. 13.
    Choose the most appropriate answer.

    • (i) In a SHG most of the decisions regarding savings and loan activities are taken by
    • (a) Bank.
    • (b) Members.
    • (c) Non-government organisation.
    • (ii) Formal sources of credit does not include
    • (a) Banks.
    • (b) Cooperatives.
    • (c) Employers.