Money and credit

 Revision Notes

https://byjus.com/cbse-notes/class-10-social-science-economics-chapter-3-money-and-credit/

.In the early times, people used to exchangs one commodity for another depending on their requirement under the barter system. However exchanging goods in the barter system required a double coincidence of wants

.However, money eliminates the need for double coincidence of wants. Since money enables the exchange process, it is also called a medium of exchange

.Money is anything which is commonly accepted as a medium of exchange and in the discharge of debts

.Before the introduction of coins, a variety of objects were used as money. For example, since the very early ages, Indians used grains and cattle as money Thereafter the use of metallic coins-gold, silver copper coins came into existence.

*Modern currency:

.Uses paper notes and coins made of relatively inexpensive metals.

.Has no value of its own.

.Has a value only because it is authored by the government of the country

.In India, the Reserve Bank of India is the only legal authority that can issue currency notes (except ne rupee note) and coins on behalf of the central government. The ruper is India's currency and nobody can refuse to accept a payment made in rupees in India.

.People deposit their additional cash in the bank. A bank in addition to accepting deposits, also pays interest on the deposit to the depositor. Thus, bank deposits are also called demand deposits.

.A person simply needs to have an account with the bank to deposit money. A cheque can be used to make payment directly from a bank deposit without using cash.

.A cheque is a written instruction to a bank by an account holder to pay a specific sum to a specific person from his deposit. A cheque has all the information about the person to whom payment is to be made, the amount and date of payment and signature of account holder issuing the cheque.

.As per the Reserve Bank of India, banks hold about 15% of their deposits as cash to arrange for daily withdrawals by depositors

. A major portion of the remaining deposits is used by banks to give loans to people. The depositors of a bank are allowed to withdraw their deposits on demand and are paid interest on their deposits. The borrowers take loans to repay it to the bank along with interest.

. The interest charged on loans is more than the interest paid by the banks on deposits. The difference between the interest charged on loans and the interest paid on deposits is the bank's income or profit.

.The loan given by a bank is also referred to an a credit.

.The idea behind Self-Help Groups is to organise the rural poor into self-help groups and collect their savings Members can take small loans from the group itself to meet their own needs.

*A loan or credit is subject to certain conditions that the borrower must agree to.These conditions are called terms of credit and include:

. A specified rate of interest.

. Security against the loan to recover the money if the borrower fails to repay it. This security is called collateral.

.The assets accepted as collateral are land or property, vehicles, livestock, standing crops and bank deposits.

 . A borrower needs to submit certain documents like proofs of identity, residence, employment and income to avail a loan.

 .The lender reserves the right to sell the collateral in case of non-repayment to recover the loan amount.

*collateral is an asset that the borrower  owns(such as land, buildings, vehicles, livestock, etc.)  and uses this as a guarantee to the lender until the loan is repaid.

*The different sources of credit are

.Banks

• Traders

• Cooperative societies

.Landlords

.Moneylenders

.Relatives and trends

*Formal and Informal Credit

.Formal credit is generally available with the banks and cooperatives. They charge lesser rates of interest than informal institutions.The Reserve Bank of India (RBI) supervises the functioning of the formal sources of loan.

. Informal lenders include moneylenders, traders, employers, relatives and friends, etc. They charge much higher interest on loans.There is no one to stop them from using unfair means to get their money back.

https://docs.google.com/document/d/1DedNa2TxlSp2jz1ewgJx3HbVbDMZErM-ArVz7MkmtZE/edit?usp=drivesdk

Money and credit