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Chapter 3 of CBSE Money and Credit Class 10 Notes provides detailed information on modern forms of money, their relationships with banking, and how they affect our national economy. This chapter includes information about credit and how borrowing can affect individuals based on their specific circumstances. Therefore, read through this note carefully to get a practical understanding of these subjects. For future reference during your exams, you can also get these CBSE Notes Class 10 Social Science in PDF format.
See the overview of this article for an idea of what we will be covering
Class 10 Money and Credit Overview
- It’s fascinating to learn about money.
- Banking is an integral part of modern money.
- A description of money’s functions.
- The process of generating money.
- In today’s economy, credit is essential.
- Credit is also crucial because it is available to everyone.
It is an interesting subject full of curiosities that deal with money. The students should understand the importance of this element. We can learn a lot about money’s history and how different forms of money were used at different times. It is hoped that the students will be able to see how these forms were used in social situations at this stage.
Money in the modern era is linked to the financial system. This is the central argument of part one of this chapter. The current situation in India, where newer forms of money are slowly spreading due to the computerization of the banking system, offers an ample amount of opportunity for students to explore.
In our discussion of money’s functions, we don’t need to get into a formal discussion, but we should let the questions emerge. There are some areas we have not discussed, such as the creation of money (money multiplier) and backing of the modern system, which can be discussed if you desire.
Main Functions of Money
According to money and credit notes, money today serves the following purposes within the economy:
- Production: The activities of production are planned, planned, executed, and managed.
- Distribution: Rents, wages, interest, etc., are the rewards from various production factors.
- Consumption: Consumption of goods and services by consumers
- Capital Formation: An investment in profitable ventures can be made from savings.
- External Trade: Currency receipts in external trade are foreign currencies.
- Public Finance: To generate its income, government uses taxes. It then uses those funds to manage and develop its affairs.
Various Functions of Credit
The main objectives of the credit presentation are as follows
- An electronic cash transaction eliminates or minimizes many of the inconveniences and risks normally associated with cash transactions.
- Funds can be remitted much more easily if credit instruments are used.
- Through the credit system, large-scale production is possible.
- Industries require short-term credit to function.
Different Forms of Money
You may need to mention the different types of money in the money and credit class 10 project. Some types of money are:
- Paper Money: The banknotes are made of paper, produced by the Central Bank, and come in various denominations.
- Metallic Money: There are two types of metallic money: tokens and coins. In India, coins are primarily in denominations of 1, 2, 5, and 10 rupees and represent metallic money.
- Legal Money: A valid means of payment for the discharge of a debt is money accepted for payment. This category includes all coins and notes issued by the government or the Reserve Bank of India.
- Bank Money: A check, draft, or a bill of exchange are forms of bank money.
- Near Money: It is called near money whenever any instrument can be easily converted into money. Such instruments include government bonds and bank deposits..
- Plastic Money: Credit cards, smart cards, and other plastic money are considered plastic money.
Money as a Medium of Exchange
Currency is a means of exchange that is used as a unit of account. In the modern economy, money serves as a medium of exchange. Both goods and services can be exchanged using money. Money can also be used to repay debts. A currency system was introduced instead of a batter system. Native Americans used grains and cattle as money before money was invented.
As part of the barter system, goods and services were exchanged according to the rule of the “double coincidence of wants”, meaning that mutual wants were fulfilled without using money. Goods and services were exchanged and they were, in turn, exchanged for another good or service. The economy is also called the commodity economy, i.e. the commodity economy.
Double coincidence of wants
The concept of double coincidence of wants refers to an exchange where both parties sell each other commodities and buy each other’s commodities. In barter exchanges, double coincidence of wants is integral to the process.
Modern form of Money
Indians used cattle and grains for money in ancient times. After that, metallic coins were used – gold, silver, copper coins – a phase that lasted into the 20th century. Currently, we have paper money and coins as forms of money. A modern banking system is tightly coupled with modern forms of money, currency, and deposits.
Besides paper currency, coins are also a common form of money in modern times. Coins of modern times are made without precious metals like gold or silver. As such, the true value of modern coins is much lower than their face value. In modern economies, money is also exchanged in the form of banknotes. These paper notes represent a currency. Currency notes usually carry a lower value than their face value.
The government of the country authorizes the currency. Due to its popularity as a medium of exchange and acceptance by others, it is widely used. As regards currency notes, it has been authorized by the central government of India to be printed by the Reserve Bank of India. The Reserve Bank of India issues rupees for commercial purposes, and no individual can legally refuse to accept them.
Deposits with Banks
In addition to bank deposits, there are also other forms of money. The person can open an account in his/her name at the bank and deposit money there. At any given time, people need only a certain amount of money to live on. Therefore, by depositing extra money in the bank, people can earn extra money, which is given on money already deposited in the bank.
Customers of the bank are also able to make payments through checks. They are used as a form of payment for paper checks. Rather than sending cash, an individual can directly transfer funds to another person through a check.
Loan Activities of Banks
Deposits are kept in cash with banks only in a small proportion. The Indian banking industry holds about 15% of its deposits in cash at the moment. On any given day, a depositor may wish to withdraw money from the bank. The depositors’ money is kept as a reserve to pay them.
Deposits are used to finance bank loans in the major part. Lending for various economic activities is in high demand. Interest rates on loans are higher than those offered on deposits by banks. The main source of income for banks is the difference between the fees they charge borrowers and the fees they pay depositors.
Two Different Credit Situations
It is generally understood that a credit (loan) agreement is one where the borrower provides the lender with money, goods, or services in exchange for the promise of future payment. The following are two examples that help you more fully understand the concept of credit.
3,000 pairs of shoes have been ordered from an important trader in the city for delivery in a month. The festival season begins in two months, so Salim, the shoe manufacturer, has been working on the project for two months. Several more workers need to be hired by Salim to thread and paste his products on time. Material purchases must be made by Salim. In order to cover the expenses, Salim obtains financial assistance from two sources.
A leather supplier is asked to supply leather now, with a promise of payment later. Additionally, the large trader agrees to loan him money in cash as payment in advance for 1000 pairs of shoes, promising to deliver the order on schedule at the end of the month. With Salim’s help, the order is delivered, he makes good profit, and he repays the loan.
Swapna’s three acres of land are planted with groundnuts. A moneylender loans her money so she can grow her crops, hoping she will recoup the loan through her harvest. Midway through the growing season, pests damage the crops and they fail. Despite spraying her crops with expensive pesticides, Swapna has seen little change.
A large amount of debt accumulates over the year since she is unable to repay the moneylender. Hence, Swapna takes another loan for farming the following year. This is a normal crop year for Swapna. She cannot pay off the old loan with earnings from this crop season. Her debts are too large. As a result, some of the lands has to be sold to repay the debt.
Terms of Credit
With every loan agreement, there is a specified interest rate that the borrower is required to pay together with the principal repayment to the lender. In addition, lenders often ask for collateral (security) in exchange for loan payments.
Borrowers use collateral (also known as security) as a guarantee to lenders for reimbursing their loans (for example, land, buildings, vehicles, livestock, and bank accounts). The lender has the right to sell the collateral or asset in case the borrower fails to pay back the loan.
Terms of credit refer to the interest rate, collateral and documentation requirements, and the repayment method together. It may vary between lenders and borrowers based on their characteristics.
Formal Sector Credit in India
It is vital that the country has access to affordable and cheap credit. Here are some of the different types of loans available:
Formal sector loans
Banks and cooperatives provide these loans. Indian central banks oversee the functioning of the formal loan market. RBI requires banks to report how much they are lending, who they are lending to, and at what interest rate.
Informal sector loans
Moneylenders, traders, businesses, employers, relatives, and friends are among the sources of loans. Informal lenders and their credit operations are not regulated by any organization. Their money can be reclaimed by utilizing unfair means without being stopped.
Formal and Informal Credit
Rural people receive less than half of their credit needs from the formal sector. Those who do not obtain credit from the formal sector. In order for the poor to benefit from the cheaper loans, it is critical that formal credit is more equally distributed.
- The growth of lending by banks and cooperatives is vital for reducing the reliance on informal credit sources, especially in rural areas.
- Although formal sector loans must be expanded, everyone needs to benefit from them.
Self Help Groups for the Poor
As a result of the following factors, poor households are still reliant on informal sources of credit:
- India’s rural areas don’t have access to banks everywhere.
- Banks do exist, but obtaining a loan from them is much harder as they require proper documentation and collateral.
The term self-help group refers to a group created to help the poor accumulate their savings. An objective of the organization is to lend loans at less interest than what is charged by moneylenders. About 15 – 20 people constitute a self-help group. Every member’s savings are different, ranging from 25 to 100 rupees, depending on how much he or she can save.
The organization also offers its members the opportunity to work for themselves through the sanctioning of the group. For example, members are provided with small loans to release mortgaged land, meet working capital demands, purchase housing materials, and acquire assets. They are also provided with groups to repay loans. If any member of the organization does not pay, the other member follows suit.
Advantages of Self Help Group (SHG)
- Using it, borrowers are able to resolve their collateral issues.
- Various types of loans can be obtained at reasonable rates of interest and for a variety of purposes.
- A rural poor’s organizational structures are based on SHGs.
- Women can gain financial independence through it.
- A variety of social issues is discussed and acted upon during regular meetings of the group, including health, nutrition, and domestic violence.
Our discussion in this chapter focused on the contemporary forms of money and their relationship with the banking system. On one side, there are those who deposit their money in banks, and on the other, there are those who borrow money from these banks.
Credit and loans are vital components of economic activity. According to our experience, credit can either have a positive effect on the borrower or in some cases make him worse off. It is possible to borrow money from many sources. Both formal and informal sources are available. The terms of formal and informal credit are very different.
As of today, the poor have to depend on informal sources of credit, while the rich receive formal credit. It is necessary for formal sector credit to increase in order to reduce reliance on informal credit, which is far more expensive. Additionally, bank loans, cooperative loans, and other formal loans should be increased for the poor. These are both vital steps towards development.
NCERT Class 10 Money and Credit Important Questions
What is Formal and Informal Credit in Class 10 Economics Chapter 3?
You will understand the concept of formal and informal credit from studying the notes of Economics Class 10 Chapter 3. It is estimated that the formal sector contributes just half of the total credit required by rural communities.
A majority of the credit is provided by informal sources. The most important aspect is that formal credits are distributed equally to poor people. Banks have the primary responsibility of reducing the reliance on the informal sector.
What are the Self-Help Groups for?
As a result, informal credit sources account for a large portion of credit flows:
(a) Rural India does not have enough banks.
(b) Despite the presence of banks in the area, obtaining a loan from a bank is very difficult due to the lack of proper documents and collateral.
People in rural India create self-help groups (SHGs) because of these specific problems. SHGs are small organizations with a focus on promoting small savings among their members. Approximately 15-20 people make up an SHG.
In situations with high risks, credit might create further problems for the borrower.
The borrower may be faced with further problems if he is given credit in a high-risk situation. The debt trap occurs when that occurs. Credit involves taking out a loan with an interest rate, and if the loan is not repaid with interest, then the borrower must forfeit his collateral to the lender.
The loan payment becomes impossible for a farmer who borrows money for crop production. It is possible for the farmer to sell some of his lands in order to repay his loan, worsening his situation. Due to this, in cases of high risks, if the borrower is negatively affected by the risks, then he could potentially lose more than he would have without the loan.
How does money solve the problem of double coincidence of wants?
It is essential to have a double coincidence of wants in a barter system in which goods are exchanged directly without using money. By serving as an exchange medium, money eliminates the difficulties associated with barter systems as well as the need for double coincidence of wants.
Therefore, the farmer no longer needs to look for a publisher who will purchase his cereals and also sell him books. Getting buyers for his cereal is all he needs to do. He can buy anything he wants with the money he has gained by exchanging cereals for money. A medium of exchange such as money enables him to buy anything he desires.
How do banks mediate between those who have surplus money and those who need money?
Small amounts (15%) of deposits are held as cash by the banks (to be paid out on demand by depositors). Their main purpose is to lend money to those in need by using deposits. Using this method, banks act as middlemen between surplus money holders and needy borrowers.
Why do we need to expand formal sources of credit in India?
There are a number of reasons why formal sources of credit in India should be expanded:
As a result, informal credit sources, which charge high-interest rates and offer little benefit to borrowers, must be reduced.
A country’s development depends on affordable and cheap credit.
There is a need for banks and cooperatives to lend more money to rural areas.
What is the basic idea behind the SHGs for the poor?
Through the organization of small Self Help Groups, the rural poor, especially women, are exposed to financial resources. As well as providing loans at a responsible interest rate without collateral, they also offer timely services. SHGs have the following objectives:
→ To establish small self-help groups in rural areas, especially among women.
→ Members will be able to collect their savings.
→ The provision of loans without collateral.
→ Loans of varying sizes are available on a timely basis.
→ A responsible interest rate and simple terms are offered on loans.
→ Provide a forum for discussion and action on a variety of social issues, including education, health, nutrition, and domestic abuse.
Analyze the role of credit for the development
In order for a country to develop, it needs cheap and affordable credit. Credit for different types of economic activities is in high demand. Credit allows people to pay for their ongoing production expenses, thereby enhancing their business development.
Borrowing is thus possible for a variety of different purposes. People can use it for various purposes such as farming, building businesses, etc. A country’s development is impacted by credit in this way.
What are the Different Forms of Credit?
The most common forms of credit are provided by banks or credit cards, according to money and credit notes. A bank will approve loans for credit through such financial institutions. Secured as well as unsecured loans can be provided by banks. Credit backed by collateral is secured, whereas credit backed by no collateral is unsecured.
By contrast, credit cards give users an opportunity to pay for goods and services with a line of credit rather than paying cash. In order to repay the credit card loan, a credit card holder must pay at the end of each billing cycle. Even within different forms of credit, money and credit can be seen as interconnected.
What is Understood By Money and Credit?
In the context of money, it is something that can be accepted as payment for any service or item. Money is primarily used for exchanging goods and services. Essentially, credit involves borrowing money from a third party and remitting that money later at a deferred date.
When money is borrowed, interest is charged, so the repayment amount becomes greater than the amount borrowed. Money and credit are important components of an economy, so understanding them is key to further enhancing it.
What are the Main Forms of Money?
When discussing money and credit, the following forms of money are usually considered:
Near the money
There is always a connection between a money’s value and its exchange value, no matter the form. The exchange value stands independently of the money’s value.
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