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Money And Credit

Question

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'Banks are efficient medium of exchange.' Support the statement with arguments.

Solution

People deposit their money with banks by opening a bank account. Banks keep the money safe and provides interest on the deposited amount. The deposited money can be withdrawn from banks as when required on demand. Bank deposits also facilitate easy transfer of money through cheques, demand drafts and internet banking.

Banks keep only 15% of their total cash deposits to meet the everyday withdrawal demands of their customers. Major portion of the remaining deposits are used to give loans to people at specific rate of interest.

Some More Questions From Money and Credit Chapter

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.

Majority of the credit needs of the _________ households are met from informal sources.

_________ costs of borrowing increase the debt-burden.

_________ issues currency notes on behalf of the Central Government.

Banks charge a higher interest rate on loans than what they offer on ________.

_________ is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

In a SHG most of the decisions regarding savings and loan activities are taken by:

Formal sources of credit does not include:

Why do we need to expand formal sources of credit in India?

Why is money accepted as a medium of exchange in India?

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