Class 10 Social Science Economics Chapter 1 Money and Banking The answer to each chapter is provided in the list so that you can easily browse throughout different chapters Assam Board Class 10 Social Science Economics Chapter 1 Money and Banking and select needs one.
Class 10 Social Science Economics Chapter 1 Money and Banking
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Money and Banking
VERY SHORT ANSWER TYPE QUESTIONS:
Q 1. What is barter?
Ans: Barter is the direct exchange of commodities against commodities.
Q 2. What is money?
Ans: Money is any item that everyone accepts as a medium of exchange. It is widely recognized as a means for purchasing goods and services and repayment of debts. It allows people to receive anything that they need for a livelihood.
Q 3. Mention one important function of money?
Ans: Money acts as a standard of measurement of values of goods and services.
Q 4. Give one example of non-legal tender money.
Ans: Cheque money.
Q 5. What is Representative paper money?
Ans: Representative money is a well-known form of money. It is money (normally paper money) that can be exchanged for the commodity behind it.
Q 6. What is Bank?
Ans: Bank is a financial institution that deals in loans.
Q 7. In years was the Reserve Bank of India was set up.
Ans: Reserve Bank of India was set up in 1935.
Q 8. What is current deposit?
Ans: A current deposit account is, usually, opened by businessmen. The account holder can deposit and withdraw money at any time as the deposit is repayable on demand.
SHORT ANSWER TYPE QUESTIONS:
Q 1. How does the lack of double coincidence of wants create problem in the barter system?
Ans: Lack of double coincidence exists in barter exchange. It refers to the situation where the mutual wants of the buyer and seller are less likely to be fulfilled simultaneously. If the buyer’s wants can be fulfilled by exchange but cannot provide what the seller wants, the exchange is unlikely to happen. It is impossible to trade if there is a lack of double coincidence of wants. For example, if A and B want to barter, then A must have what B wants. At the same time, B must have what A wants.
Q 2. What is meant by store of value?
Ans: Store of value means the capacity to resume the value of commodities for an indefinite period. Store of value is one of the most important function of money.
Q 3. Which characteristic of money is the most important one and why?
Ans: Money as a medium of exchange is the most important characteristic of money, which will ensure its perpetual use.
Q 4. What is liquidity of money?
Ans: Liquidity of money means direct and immediate convertibility of money into goods and services that the holder of money wants.
Q 5. ‘Money is the common unit of measurement of the value of the goods and services’. Explain.
Ans: Money acts as a standard of measurement of values of goods and services. All economic goods have prices. The value in exchange expressed in terms of money is price. Money is the common unit of measurement. The value of all economic goods and services are expressed in prices only.
Q 6. What is the difference between limited and unlimited legal tender?
Ans: The difference between limited and unlimited legal tender are:
Limited legal tender money is the money which can be accepted only up to a certain maximum limit.
Unlimited legal tender money is the money which a person has to accept without any limit of amount. For example all currency notes and coins of 50 paise are unlimited legal tender money.
Q7. What are the functions of the Regional Rural Banks?
Ans: The function of the Regional Rural Banks an are:
(i) The RRBs possess complete knowledge of the problems faced by the people in the rural regions as they operate in a familiar environment.
(ii) RRBs provide banking as well as credit facilities to the marginal farmers, small entrepreneurs, artisans, laborers, etc. in rural areas.
Q 8. How are the non Banking financial institution different from the banks?
Ans: The non Banking financial institution differ from Banks following respects:
Banks and NBFCs are the two crucial financial intermediaries in any financial system. Banks are the traditional types of entities that accept deposits from the public and provide loans to the public, while NBFCs offer various financial services to consumers without a banking licence. Let us check out the major difference between NBFC and bank.
LONG ANSWER TYPE QUESTIONS:
Q 1. Explain four demerits of the barter system?
Ans: There are four major disadvantages/demerits of the barter system-
(a) Lack of double coincidence of the wants: The barter system fails to work in the absence of double coincidence of wants. In any dynamic society, it is difficult to find two persons wants coinciding with each other. For the barter system to operate, the wants of two persons must coincide.
In other words, the goods offered by two persons must be acceptable to each other. To take a example, a person wants to acquire rice in exchange for cloth and another person wants to acquire cloth in exchange for rice. In this case, both the persons depend in each other and their wants coincide. In such a double coincidence of wants, the exchange will be possible. But if the owner of cloth wants mustard oil instead of rices, the wants of these two persons will not coincide and the barter exchange will not take place.
(b) Difficulties in the Measurement of value: The measurement of value was quite a problem in the barter system. In the barter system of exchange, there was no any common measure of value. In such a situation, it was no possible to express all goods by a particular measure of value. The value of a good, in general, depends on the intensity of wants. Since all goods do not have equal values, so how much quantity of a good could be needed to acquire some quantity of another good, there was no any definite measure to ascertain. In the absence of a particular measure of value, the system of exchange suffered from various complexities.
(c) Difficulty of Divisibility: The indivisibility of some goods created problems in the barter system. As some goods are non-divisible, the exchange of these goods with other goods may not be beneficial. For example, it is not gainful to exchange an elephant for some quantity of rice because an elephant cannot be divided in terms of some quantity of rice. The lack of divisibility made exchange quite difficult in the barter system.
(d) Difficulty of Store: Saving is a part of earning. The people desire to be for future security, future transactions or future earnings. In the barter goods in store for a long time. There are some goods which may be very system, saving means storing of goods. But is was not possible to keep the easily perishable. The difficulty in storing was a major problem in the barter system.
Q 2. Explain any four characteristics of money.
Ans: The characteristics of money are:
(a) Money must have general acceptability: It must be acceptable as a medium of exchange. This is the most important characteristic of money. It is definitionally true.
(b) Money must have cognizability: There should be absolutely no difficulty in identifying money. If money is not easily recognisable, transactions will naturally be problematic.
(c) Money must have durability: Lack of durability of commodity money was one of the major problems in the barter system. If money is perishable, money cannot be stored up. In that case, there will be no store of value. Saving will be impossible.
(d) Money must have homogeneity: In other words, money of equivalent value must be identical in all respects. If one ten rupee note is like a ribbon in size and another is a big as the size of a register book, there will be problems of selection and rejection. The bigger one may be rejected and the smaller one accepted. Therefore, all ten rupee notes must be perfectly identical in all respects. Similarly for money of other denominations.
(e) Money must have liquidity: Liquidity of money means direct and immediate convertibility of money into goods and services that the holder of money wants. In fact, compared to other assets, the degree of liquidity is the maximum in case of money.
Land, gold, silver other assets also have liquidity but their liquidity is less than that of money as these are not directly and immediately convertible into goods and services. For example, a plot of land cannot be instantly converted into goods and services. The plot of land has to be sold out and the money earned will be used to buy goods and services. Same is the case with gold, silver and other assets. The case is different with money.
(f) Money must have transferability: The volume of trade and commerce is expanding over time. The area of the market is being extended. It will be difficult to settle transactions, if money lacks transferability. In today’s money economy it is not even necessary to physically transfer money to settle transactions. Payment may be made through adjustment of bank accounts. Credit cards and debit cards are being increasingly used to settle transac-tions. Core banking facilities or online payment may also be made to settle transactions.
(g) Money must have divisibility: High value money may be converted into low value money. There is money to settle transactions of all values, high or low. Lack of divisibility of commodity money was another major problem of the barter system. Money can settle a transaction of 50 paise or a transaction of Rs. 50 crore.
(h) Money must have stability of value: If the value of money continues to fall all the time, money will fail to act as the store of value. In Germany when the value of money fell sharply or the price level rose quite rapidly, people eventually refused to be introduced.
Q 3. Explain four major functions of money.
Ans: Money performs four different function. These are discuss below:
(a) Medium of Exchange: Money is used-as means of transactions of all goods and services. Money is thus, regarded as a medium of exchange. This is the main function of primary function of money. The buyers and sellers in the market exchange goods with the help of money. A buyer buys some amount of goods by making payment of a certain amount of money to a seller. Similarly, a seller receives some amount of money from the buyer by offering some amount of a goods. This is called exchange. It is because of the general acceptability of money that the exchange of any service or a commodity has been possible with the help of money.
(b) Measure of value: Money acts as a measure of value. The values of all goods and services are determined with the help of money. The amount of money which has to be paid to buy a commodity is the price of that commod-ity. In other words, the exchange value expressed in the form of money becomes the price of the commodity. The production cost and sale price or exchange value of all commodities are expressed in terms of money and, as such, money is the measure of value.
(c) Store of value: People like to keep a part of their earning as saving. The act of this saving is performed through money. This is because, money is highly durable and it si also easy to save money. Like any other commodi-ties, money is not easily perishable. By its store, Money can be transformed into commodity. The people generally desire to store money for future secu-rity, future transaction and future income. It is, thus highly beneficial to store money for future uses.
(d) Standard of Deferred Payments: Money is not simply a medium of exchange or a measure of value or a store of value, money is the standard of deferred payments also. Money acts as the medium of all transactions like landing and borrowing. The modern economic system cannot run on the present day transaction activities only. A country’s production and trade and commerce have to depend, to a great extent, on the credit system. The major function of banks and other financial institutions is to supply credit.
From these institutions, money is borrowed and invested in productive ac-tivities. An individual or even an organisation can borrow from banks. Money facilities the act of burrowing, lending and repayment of loans.
Q 4. Is cheque money? Give reason for your answer.
Ans: Cheque is not money. cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been drawn.
(i) Cheque cannot be instantly converted into money, i.g. lack liquidity
(ii) Cheque is not characteristics by general acceptability as the medium of exchange.
(iii) Cheque does not possess Cognizability. Transactions can be problematic if a cheque bounce.
Q 5. Mention four problem associated with money.
Ans: With money come power, pride, attitude and jealousy. All the four are serious problems and can ruin the character of the person from the core and affect his personality.
Money brings power and one start misusing the same. The person becomes extremely proud and starts thinking that he is the best.
These problems are:
(i) When money loses its value stability, a slew of problems can arise. For example, if the value of money continues to fall, consumers will have to spend more money in order to purchase the same amount of goods and services from the market.
(iii) Leads to social evils: many of the social evils which affect society today, are the consequences of the misuse of money. Bribery , corruption misuse of money power in politics, financial fraud, bank scam, etc.
(ii) A lack of money may be the root of the social value system’s demise. Corruption, irregularities, and various forms of injustice are the end results of degrading values.
(iv) When money becomes black money, the economy suffers in a variety of ways. For example, large-scale tax evasion may cause the government to lose a significant amount of revenue.
Q 6. Explain any four function of the Central Bank.
Ans: Central bank is regarded as an apex financial institution in the banking system. It is considered as an integral part of the economic and financial system of a nation.
The main function of the Central Bank are:
(a) Issue of Paper Currency: The Central Bank has the sole power of issuing paper currency. For this, the Central Bank has to maintain a gold reserve at some specific rate. In the present time, the reserve requirements have been liberalised. The notes are issued on the principle of minimum reserve system. The Reserve Bank of India prints notes on the basis of this principle. In the minimum reserve system, a certain minimum amount of gold and foreign exchange have to be kept in reserve.
(b) Banker to the Government: The Central Bank functions as the banker to the government. In this, the Central Bank acts as (a) the supplier of fund to the government, (b) the adviser to the government and (c) the agent. to the government, In order to meet the budget deficit of the central government, the Central Bank provides funds by printing new currency notes. The Central Bank supervises the governmental debt.
(c) Banker to the Banks: The Central Bank is the banker to the banks. The commercial banks have to keep a portion of their deposits to the Central Banks. The Central Banks examines the accounts of the commercial banks. If necessary, the commercial banks can borrow from the Central Bank. The Central Bank also acts as the clearing house for the commercial banks. The Central Bank settle the claims of the commercial bank against each other.
(d) Regulation of Credit: The Central Bank controls the credit system of a country. The money supply of the country increases and the price level moves up because of credit expansion by commercial banks. The rapid expansion of bank credit is the major cause of inflation in developing coun countries tries.
(e) Development Functions: The Central Bank actively participates in economic development of developing countries. It is the duty of the Central Bank to make the country’s banking system development oriented. The Central Bank helps to increase the economic growth rate by linking the credit system of the country to productive activities.
Q7. Explain any two major functions of the commercial banks.
Ans: The main function of the commercial banks are:
1. Accepting deposits: The basic function of commercial banks is to accept deposits of the customers. These deposits are of the following types:
(i) Saving Accounts: Saving accounts cater to the needs of those individuals who wish to save a part of their income and earn interest on the amount saved.
(ii) Fixed deposit accounts: As the name suggests, fixed deposit accounts imply deposits are kept for fixed periods of time; for example, Rs.500 per month for 5 years. The period has to be decided in advance, while opening the account. Holders of these accounts do not enjoy the cheque facility.
(iii) Current deposits accounts: Current deposit accounts are also called ‘demand deposits’ as the depositor can withdraw money at any time through cheques. Businessmen use this account to make many transactions in a single day; however, they do not earn interest on the deposits.
2. Granting loans and advances: The second most important function of the commercial banks is to give loans and advances. The rate of interest charged by the banks on loans is higher than the rate of interest paid by the banks on demand deposits and saving deposits.
3. Agency functions: The commercial banks perform various agency functions with the prime purpose of acceptance of deposits and granting of loans.
Their functions include:
(i) Transfer of funds: The banks provide easy flow of funds from place to place via mail transfers, demand drafts, etc.
(ii) Collection of funds: The banks also collect funds on behalf of its customers through bills, cheques, etc.
(iii) Banks collect insurance premiums, dividends, interest on debentures, etc.
4. Discounting bills of exchange: Commercial Banks provide financial assistance to the business community by discounting bills of exchange. The banks purchase these bills, produced by customers, by deducting interest from the face value of the bill, thus providing easy finances to the business community when required.
5. Credit creation: Commercial banks create credit in the economy through demand deposits. Credit creation paves the path for the growth of the economy.
Q 8. Briefly explain any two function of each of the following:
Ans: 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) R R B’s
Ans: 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) N A B A R D
Ans: N A B A R D:
The function of N A B A R D are:
(i) NABARD is the apex financial institutions among all the institutions related to investment and production in the rural areas.
(ii) NABARD streamlines the process of offering loans, monitors and evaluates the progress of various rural schemes and organises training programmes for the beneficiaries.
(iv) S I D B I
Ans: 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.
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