The following table shows people in a variety of occupations in urban areas
[question] Question. The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? Fill in the column. Next, classify the people into two groups based on whom you think might get a bank loan and those who might not. What is the criterion that you have used for classification? [/question] [solution] Solution: The criterion I have used for the aforementioned classification is firstly, whether the borrower has the...
Choose the most appropriate answer.
[question] Question. 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. [/question] [solution] Solution: (i) (b) (ii) (c) [/solution]...
Fill in the blanks:
[question] Question. 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 guarantee until the loan is repaid to the lender. [/question] [solution] Solution: ...
In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
[question] Question. 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. [/question] [solution] Solution: (a) Banks might be unwilling to lend to small farmers for lack ...
Manav needs a loan to set up a small business.
[question] Question. 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. [/question] [solution] Solution: Manav needs a loan to set up a small business. Manav will decide on whether to borrow from the bank or the moneylender on the basis of various factors. Firstly, he must have a collateral or asset which can guarantee his loan. If he lacks such an asset, Manav cannot get a loan from a bank. In this scenario...
Analyse the role of credit for development.
[question] Question. Analyse the role of credit for development. [/question] [solution] Solution: Credit plays a crucial role in a country’s development. By sanctioning loans to developing industries and trade, banks provide them with the necessary aid for improvement. This leads to increased production, employment and profits. However, caution must be exercised in the case of high risks so that losses do not occur. This advantage of loans also needs to be manipulated and kept under an administr...
In what ways does the Reserve Bank of India supervise the functioning of banks?
[question] Question. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? [/question] [solution] Solution: The Reserve Bank of India monitors the amount of money that banks loan out, and also the amount of cash balance maintained by them. It also ensures that banks give out loans not just to profiteering businesses but also to small cultivators, small scale industries and small borrowers. Periodically, banks are supposed to submit information to ...
What are the reasons why the banks might not be willing to lend to certain borrowers?
[question] Question. What are the reasons why the banks might not be willing to lend to certain borrowers? [/question] [solution] Solution: Banks might not be willing to lend to people who cannot provide collateral, who do not have steady earnings or jobs, and who have a history of non-repayment of loans. In such cases, banks do not have a guarantee as to whether or not the loans will be repaid by the persons concerned. It has to be understood that banks only mediate between those who have surpl...
What is the basic idea behind the SHGs for the poor? Explain in your own words.
[question] Question. What is the basic idea behind the SHGs for the poor? Explain in your own words. [/question] [solution] Solution: The basic idea behind the SHGs for the poor is to provide them with a vista for self-help in financial areas. A self-help group is a small group comprising people in the rural areas who collect their savings, and loan these out to members on an interest rate lower than that charged by the informal sector. If the SHG functions well for over a year, then it becomes ...
Why do we need to expand formal sources of credit in India?
[question] Question. Why do we need to expand formal sources of credit in India? [/question] [solution] Solution: We need to expand formal sources of credit in India for two main reasons. Firstly, to reduce dependence on informal sources of credit because the latter charge high interest rates and do not benefit the borrower much. Secondly, they will be able to provide loans to a larger group of people who trust government sanctioning more than a private loaning system. [/solution]...
Look at a 10 rupee note. What is written on top? Can you explain this statement?
[question] Question. Look at a 10 rupee note. What is written on top? Can you explain this statement? [/question] [solution] Solution: A ten rupee note has “Reserve Bank of India” written at the top, along with a statement “guaranteed by the central government”, following it. It is a promissory note and can only be issued by the Reserve Bank of India which supervises all money-related functions in the formal sector, in India. The statement on the ten rupee bank note relates to this idea that the...
How do banks mediate between those who have surplus money and those who need money?
[question] Question. How do banks mediate between those who have surplus money and those who need money? [/question] [solution] Solution: A bank mediates between those who have surplus money and those who need money by allowing both to open accounts with it. Banks only keep about 15% of cash reserves to provide to people who come to withdraw money on a daily basis. Those with surplus money are encouraged to invest with the bank and are paid a certain rate of interest for the same. Those who need...
How does money solve the problem of double coincidence of wants?
[question] Question. How does money solve the problem of double coincidence of wants? Explain with an example of your own. [/question] [solution] Solution: Money solves the problem of double coincidence of wants by acting as a medium of exchange. Double coincidence of wants implies a situation where two parties agree to sell and buy each other’s commodities., i.e., what one party desires to sell is exactly what the other party wishes to buy. Money does away with this tedious and complex situatio...
In situations with high risks, credit might create further problems for the borrower. Explain.
[question] Question. In situations with high risks, credit might create further problems for the borrower. Explain. [/question] [solution] Solution: In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender. Thus, in situations with high risks, if the ris...