Money and Credit Questions and Answers CBSE Class 10 Board Exam

1 Mark Questions

Question 1. Give any two examples of informal sector of credit.

Answer : The two examples of informal sector of credit are moneylenders and friends.

Question 2. Highlight the inherent problem in double coincidence of wants.

Answer : The inherent problem in double coincidence of wants is both the parties (seller and the buyer) have to agree to buy and sell each other’s commodities.

Question 3. How does the use of money make it easier to exchange things? Give an example.

Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then with that money he can bed to buy wheat.

Question 4. How is money beneficial in transactions?

Answer : Money is beneficial in transactions as we can directly settle the transaction with use of it.

Question 5. How do the deposits with the banks become their source of income?

Answer : With the deposits in the bank, the bank use it to extend loan to the borrowers with the high rate of interest. Bank pays less rate of interest to the depositors. The difference is the source of income of the banks.

Question 6. Why can one not refuse a payment made in rupees in India?

Answer : One cannot refuse a payment made in rupees in India because it is authorized by the government of the country.

Question 7. Compare formal sector loans with informal sector loans regarding interest only.

Answer : The rate of interest charged by the formal sector is low whereas it is high in case of the informal sector.

Question 8. Why is the supervision of the functioning of the formal sources of loans necessary?

Answer : The supervision of the functioning of the formal sources of loans necessary to protect the borrowers from any kind of harassment as done in the informal sector.

Question 9. Prove with an argument that there is a great need to expand formal sources of credit in rural India.

Answer : There is a great need to expand formal sources of credit in rural India so that the people can be protected from the clutch of the moneylenders and improve their economic condition.

Question 10. Why are most of the poor households deprived from the formal sector of loans?

Answer : As the banks are not available everywhere in the rural areas and also due to its documentation process, most of the poor households are deprived from the formal sector of loans.

Question 11. How does money eliminate the need for double coincidence of wants?

Answer : Money acts as an intermediate in the exchange process and thus eliminates the need for double coincidence of wants.

Question 12. What is the meaning of barter system?

Answer : In the earlier times, before the introduction o f money, goods and services were exchanged with goods and services. This system of exchange was termed as barter system.

Question 13. What is meant by double coincidence of wants?

Answer : An essential feature of barter system is double coincidence of wants in which, both the parties (seller and the buyer) have to agree to buy and sell each other’s commodities.

Question 14. How does money act as a medium of exchange?

Answer : Money acts as an intermediate in the exchange process and eliminates the need for double coincidence of wants. As money acts as intermediate, it is also called medium of exchange.

Question 15. What is a cheque?

Answer : A cheque is a paper that instructs the bank to pay a specific amount from the holder’s account to the person in whose name the cheque has been issued.

Question 16. Who supervises the functioning of the formal sources of loans?

Answer : The functioning of the formal sources of loans is supervised by the Reserve Bank of India.

Question 17. What are the two forms o f modern currency?

Answer : Paper notes and coins are the two forms of modern currency.

Question 18. What is collateral?

Answer : It is an asset that the borrower owns and given to the lender as a guarantee that he will repay the loan. If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back.

Question 19. Define credit.

Answer : Credit is an agreement between the lender and the borrower in which the borrower promises to pay the lender in the future.

Question 20. Which are the two major sources of formal loan for rural households.

Answer : The two major sources of formal loan for rural households are Banks and Cooperatives.

3 Marks Questions

Question 21. Why is cheap and affordable credit important for the country’s development? Explain any three reasons.

Answer : Due to the following three reasons, cheap and affordable credit is important for the country’s development:

(a) It will help people to take credit for variety of reasons.

(b) It will help poor people to get rid of the problem of moneylenders and their high rate of interest.

Question 22. “Banks are efficient medium of exchange.” Support the statement with arguments.

Answer : Yes, it is true to say that Banks are efficient medium of exchange. People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.

Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.

Question 23. Explain any three loan activities of banks in India.

Answer : The three loan activities of the banks are:

(a) People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.

(b) Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day.

Question 24. Illustrate with examples the role of ‘loan’ in business.

Answer : The loan plays two different role in business:

(a) Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example, Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan.

(b) Sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation, the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example, a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question 25. Describe the utility of Cheque.

Answer : A Cheque is a paper that instructs the bank to pay a specific amount from the account holder’s account to the person in whose name the Cheque has been issued. Demand deposits are accepted as a means of payment because the depositors get the facility of Cheque against it, which is used to settle the transaction without the use of money.

Question 26. How can money be easily exchanged for goods and services? Give an example to explain.

Answer : If a shoe manufacturer wants to sell shoes and buy wheat, then first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat. Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and that money can used to buy wheat.

Question 27. “The credit activities of the informal sector should be discouraged.” Support the statement with arguments.

Answer : It is true to say that the credit activities of the informal sector should be discouraged. It is due to the following reasons:

(a) They charge high rate of interest in comparison to that of formal sector.

(b) Thus the cost of borrowing is high.

(c) Due to high cost of borrowing,the borrowers have to repay more and they will have less saving, which will hinder individual economic development and ultimately will affect the country’s economic development.

Question 28. “Cheap and affordable credit is crucial for the country’s development.” Assess the statement.

Answer : Due to the following three reasons, cheap and affordable credit is important for the country’s development:

(a) It will help people to take credit for variety of reasons.

(b) It will help poor people to get rid of the problem of moneylenders and their high rate of interest.

Question 29. “Deposits with the banks are beneficial to the depositors as well as to the nation.” Examine the statement.

Answer : Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers. This helps other people to run and expand their business which will increase the individual income and finally the country’s income.

Question 30. ‘Credit has its own unique role for development.’ Justify the statement with arguments.

Answer : Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example, Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes. In the end he delivered the order, made profit and repaid the loan. Sometimes, credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example, a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question 31. How is money transferred from one bank account to another bank account? Explain with an example.

Answer : In modern times we have different options to transfer the money from one bank account to another such as through Cheque, draft, internet banking etc. A Cheque is a paper that instructs the bank to pay a specific amount from the holder’s account to the person in whose name the cheque has been issued. In case of a Cheque, a person writes a Cheque in the name of the person in whose account the money is to be transferred. Then it is deposited by the person in his/ her bank. The bank transfers the amount to the person on whose name the cheque is drawn.

Question 32. “Poor households still depend on informal source of credit.” Support the statement with examples.

“Most of the poor household still depend on the informal sector for loans, both in rural and urban areas of India.” Support the statement with three examples.

Answer : Yes, it is true that the poor households still depend on informal source of credit. It is due to the following reasons:

(a) Banks are not present everywhere.

(b) Collateral is required by the formal sector loan providers.

Question 33. Why is it necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas? Explain.

Answer : Due to the following reasons it is necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas:

(a) There is limited availability of the formal sector credit sources in the rural areas.

(b) The poor borrowers are bound to take loan from the moneylenders at high rate of interest.

Question 34. Why is modern currency accepted as a medium of exchange without any use of its own? Find out the reason.

Answer : Modern currency accepted as a medium of exchange without any use of its own due to the following reasons:

(a) In the modern times, currency notes and coins are used as a medium of exchange.

(b) These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.

(c) As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question 35. “Money has made transactions easy.” Justify.

Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question 36. How does money solve the problem of double coincidence of wants? Explain with an example.

Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question 37. How is money used in everyday life? Explain with examples.

Answer : Use of money in our daily life:

(a) Money has become an essential part of life.

(b) For any kind of exchange of goods and services, we need money.

(c) In earlier times, when money was not in use, grains and cattle were used which was quite difficult as we had to face the problem of double coincidence of wants. But now for every transaction we are using money.

Question 38. Explain with examples, how people are involved with the banks.

Answer : Three different people are involved in this process- depositors, bank and the borrowers.

This is how the banks mediate between the depositors and the borrowers i.e. those having surplus and those who are in need of money.

Question 39. Explain with an example, how credit plays a vital and positive role for development?

Answer : Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question 40. Why do lenders ask for a collateral while lending? Give any three reasons.

Answer : The lenders ask for a collateral while lending due to the following reasons:

(a) It is an asset that the borrower owns and given to the lender as a guarantee that he will repay the loan.

(b) If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back.

Question 41. How is money used as a medium of exchange? Explain with examples.

Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, first he has to look for a wheat-growing farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question 42. What are the modern forms of money? Why is rupee widely accepted as a medium of exchange? Explain two reasons.

Answer : In the modern phase, currency notespaper notes and coins are used as a medium of exchange.

These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.

As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question 43. What is a collateral? Why do lenders ask for collateral while lending? Explain.

The lenders ask for a collateral while lending due to the following reasons:

(a) It is an asset that, the borrower owns and given to the lender as a guarantee that he will repay the loan.

(b) If the borrower is unable to repay the loan then the lender has the right to sell it and get the money back.

Question 44. ‘Cheap and affordable credit is essential for poor household both in rural and urban areas.’ In the light of the above statement, explain the social and economic values attached to it.

Answer : Due to the following three reasons cheap and affordable credit is important for the country’s development:

(a) It will help people to take credit for variety of reasons.

(b) It will help poor people to get rid of the problem of moneylenders and their high rate of interest.

Social values: Due to cheap and affordable credit people will not be discriminated and ill-treated by the lenders.

Economic values: Due to the cheap and affordable credit the borrowers will easily repay the loan and there will be economic development.

Question 45. What are demand deposits? How is money safe in the banks? Explain.

Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited.

Question 46. What is money? Why is modern money currency accepted as a medium o f exchange?

Answer : Money is a medium of exchange used in settling the transactions. Money acts as an intermediate in the exchange process and eliminates the need for double coincidence of wants. As money acts as intermediate, it is also called medium of exchange.

People have exchanged their goods and services since from the beginning. The medium of exchange kept on changing in different phases. In the modern phase currency notes- paper notes and coins are used as a medium of exchange.

These are not made of any precious metals even though used as a medium of exchange because the government of the country authorizes the currency.

As the law legalizes the use of rupee, so no individual can refuse a payment made in rupees. Therefore, rupee is widely accepted as a medium of exchange.

Question 47. “Whether credit will be useful or not, depends upon the situation.” Give two different examples in support of this statement.

Answer : It is true to say that the usefulness of credit depends on the situations.

Positive role of credit: credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Negative role of credit: sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.

Question 48. How do self-help groups help borrowers to overcome the problem of lack of collateral? Explain with an example.

Answer : This is a new idea to organize rural poor particularly women who pool their savings. Generally, this group has 15-20 members. Members belong to the neighborhood so that they can meet and save regularly. Saving per member varies from Rs. 25 to Rs.100 or more, depending on the economic condition of the member.

When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank. Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest.

Loan matter is taken very seriously, as if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

Question 49. Why is there a great need to expand formal sector of credit in India? Explain any three reasons.

Answer : Due to the following reasons it is necessary for the banks and the cooperative societies to increase their lending facilities in the rural areas:

(a) There is limited availability of the formal sector credit sources in the rural areas.

(b) The poor borrowers are bound to take loan from the moneylenders at high rate of interest.

Question 50. Mention any three points of distinction between formal sector loans and informal sector loans.

Answer : The three points of distinction between formal sector loans and informal sector loans are:

(a) Banks and cooperatives are called the formal sector credit whereas moneylenders, friends etc. are called the informal sector credit.

(b) Formal sector credit charge less rate of interest whereas informal sector credit charges very high rate of interest.

5 Marks Questions

Question 51. ‘Self-Help Groups’ help borrowers to overcome the problems of lack of collateral.” Examine the statement.

Answer : This is a new idea to organize rural poor particularly women who pooltheir savings. Generally, this group has 15-20 members. Members belong to the neighborhood so that they can meet and save regularly. Saving per member varies from Rs.25 to Rs.100 or more, depending on the economic condition of the member.

Loan matter is taken very seriously as, if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

Question 52. Review any three merits and any two demerits of ‘formal sector of credit’ in India.

Answer : Merits of formal sector credit in India:

(a) It provides cheap and affordable credit.

(b) Due to low cost of borrowing,the borrowers have to repay less and they will have more saving.

Demerits of formal sector credit in India:

(a) Mostly people in the urban areas and the well-off households use it.

(b) F o rm a l sector credit need proper documents and collateral before lending.

Question 53. “Banks are playing an important role in the development of the Indian economy.” Support the statement with examples.

Answer : Cheap and affordable credit is important for the country’s development because:

(a) It will help people to take credit for variety of reasons.

(b) It will help poor people to get rid of the problem of moneylenders and their high rate of interest.

Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks, 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.

This helps people to run and expand their business which will increase the individual income and finally the country’s income. Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question 54. Describe the vital and positive role of credit with examples.

How does credit plays a vital and positive role? Explain with suitable example.

Answer : Credit: Credit is an agreement between the lender and the borrower in which the borrower promises to pay the lender in the future.

Positive role of credit: Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question 55. How can the formal sector loans be made beneficial for the poor farmers and workers? Suggest any five measures.

Answer : The formal sector loans can be made beneficial for the poor farmers and the workers by taking the following measures:

(a) There should be availability of more and more banks in the rural areas.

(b) Providing the loan to the poor at much cheaper rates.

(d) Depending on situation, farmers should be given credit without collateral.

(e) There should be provision of instant loan to the farmers and the poor.

Question 56. How are deposits with banks beneficial for the individual as well as for the nation? Explain with examples.

Answer : Those having extra cash open a bank account in their name and deposit the surplus money there. Their money is safe with the banks and they get some interest rate on the amount they have deposited. Out of the total money deposited with the banks 15% of it is kept as minimum cash balance to pay to the depositors who might come to withdraw money from the bank on any given day. Rest of the amount is used to extend loan to the borrowers.

This helps people to run and expand their business which will increase the individual income and finally the country’s income.

Question 57. What are Self–Help Groups? How do they work? Explain.

Answer : This is a new idea to organize rural poor particularly women who pooltheir savings. Generally, this group has 15-20 members.

Members belong to the neighborhood so that they can meet and save regularly. Saving per member varies from ` 25 to ` 100 or more, depending on the economic condition of the member.

Loan is provided to help them to create self-employment opportunities. All the group members together take decision regarding saving and loan activities.

SHG helps women in making them financially self-reliant and provides platform to discuss and act on a variety of social issues.

Question 58. How do banks play an important role in the economy of India? Explain.

Answer : People take credit from different sources, which can be grouped into two- formal sector loans and informal sector loans. Formal sector credit sources includes banks and cooperatives.

They charge less rate of interest in comparison to that of informal sector. Thus the cost of borrowing is less. Due to low cost of borrowing, the borrowers have to repay less and they will have more saving, which will cause individual economic development and ultimately will lead to the country’s economic development. Therefore, it can be said that formal sources of credit provides us cheap and affordable credit, which is important for country’s development.

Thus it is important that banks and cooperatives should increase their lending especially in the rural areas so that people will be less dependent on the informal sector.

Question 59. What is credit? How does credit play a vital and positive role? Explain with an example.

Answer : Credit is an agreement between the lender and the borrower in which the borrower promises to pay the lender in the future. Credit plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money.

For example: Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pair of shoes, in the end he delivered the order, made profit and repaid the loan.

Question 60. Why is it necessary for the banks and the cooperative societies to extend their lending activities in the rural areas? Explain.

Answer : Due to the following reasons it is necessary for the banks and the cooperative societies to extend their lending activities in the rural areas:

(a) There is limited availability of the formal sector credit sources in the rural areas.

(b) The poor borrowers are bound to take loan from the moneylenders at high rate of interest.

(d) Formal sector credit is required in the rural areas to expand the farming and small scale business activities.

(e) I t is important for the individual development of the people in the rural areas.

Question 61. What are the two categories of sources of credit? Mention four features of each.

Answer : The two categories of sources of credit are formal sector credit and informal sector credit.

Four features of formal sector credit are:

(a) Formal sector credit sources includes banks and cooperatives.

(b) Mostly people in the urban areas and the well-off households use it.

(d) They charge less rate of interest in comparison to that of informal sector. Thus the cost of borrowing is less.

Four features of informal sector credit are:

(a) Informal sector credit sources includes moneylenders, friends, relatives, traders etc.

(b) Mostly people in the rural areas and the poor households use it. Many a times informal sector don’t ask for documents and collateral as they know the borrowers personally.

(d) Due to high cost o f borrowing, the borrowers have to repay more and they will have less saving, which will hinder individual economic development.

Question 62. What are self-help groups? How are they emerging as an important source of credit? Explain.

Answer : This is a new idea to organize rural poor particularly women who pooltheir savings. Generally, this group has 15-20 members.

Members belong to the neighborhood so that they can meet and save regularly. Saving per member varies from Rs. 25 to Rs. 100 or more, depending on the economic condition of the member.

Question 63. Which government body supervises the functioning of formal sources of loans in India? Explain its functions.

Answer : RBI is the government body which supervises the functioning of formal sources of loans in India. Functions of RBI:

(a) RBI sees that the banks maintain the minimum cash balance or not.

(b) RBI monitors that the loan is not just given to the profit-making businesses and traders but also to the small borrower.

(c) RBI asks the banks to submit information like how much they are lending, to whom they are lending and at what rate of interest etc.

Question 64. Describe any four advantages of Self-Help Groups for the poor.

Answer : This is a new idea to organize rural poor particularly women who pooltheir savings. Generally, this group has 15-20 members. Members belong to the neighborhood so that they can meet and save regularly. Saving per member varies from Rs. 25 to Rs. 100 or more, depending on the economic condition of the member.

The four advantages of Self-Help Groups for the poor are:

(a) When the group is regular in saving for a year or two then the group is eligible for getting loan from the bank.

(b) Bank provide loan in the name of the group and then the SHG gives loan to its members at very low rate of interest.

(c) Loan matter is taken very seriously, as if any one member is not able to repay the loan then it is followed by other members and because of this feature, they get loan from the bank even though they have no collateral.

(d) Loan is provided to help them to create self-employment opportunities. SHG helps women in making them financially selfreliant and provides platform to discuss and act on a variety of social issues.

Question 65. Explain any four terms of credit with examples.

Answer : Terms of credit includes interest rate, collateral, documents, mode of repayment etc.

Suppose a person taking a loan of Rs. 5 lakhs at 5% rate of interest from the bank. He has kept his house with the bank as a guarantee of repayment. He agreed to pay the monthly installment.

Question 66. Explain two points of differences between formal and informal sources of credit.

Answer : The two points of differences between formal and informal sources of credit are:

(a) Formal sector credit charge less rate of interest whereas informal sector credit charges very high rate of interest.

(b) Formal sector credit is easy to repay whereas the informal sector credit is difficult to repay.

Question 67. How does the use of money make the exchange of things easier? Explain with examples.

Answer : In barter system, if a shoe manufacturer wants to sell shoes and buy wheat, and then first he has to look for a wheat growing farmer who wants to buy shoes and needs to sell wheat.

Money can make it easier to exchange the things. The shoe manufacturer can sell the shoes for money and then that money can bed to buy wheat.

Question 68. Why the deposits in the banks are called demand deposits? What are the benefits of deposits with the banks?

Answer : Depositors are those who open an account and deposit money in the banks. Depositors can withdraw their money as and when they require therefore, these deposits are also called demand deposits. Demand deposits are accepted as a means of payment because the depositors get the facility of Cheque against it, which is used to settle the transaction without the use of money.

The benefits of deposits with the banks are:

(a) People have extra cash with them. Those having extra cash open a bank account in their name and deposit the surplus money there.

(b) Their money is safe with the banks.

Question 69. When does credit push the borrower into a debt-trap? Explain with the help of an example.

Answer : Sometimes credit is very painful as it pushes the borrower into such a situation from where recovery is very difficult. In this situation the borrower is not able to repay the loan and many a times caught into the situation of debt-trap. For example:-a small farmer Swapna took loan for crop cultivation but due to some reason she faced the situation of crop failure. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.