14 worked answers · short steps first, explanations when you need them
Exercises and activities
Textbook pages 52–53
Question 1
Explain why credit can create problems for a borrower when the risk of a livelihood or business is high.
Steps only
If a crop fails or a business earns less than expected, the borrower may not have enough income to repay the loan.
Answer
If a crop fails or a business earns less than expected, the borrower may not have enough income to repay the loan. Interest and penalties can then increase the debt. The borrower may have to sell assets or borrow again. Credit helps when income is likely, but risky loans can deepen hardship.
Question 2
How does money solve the problem of double coincidence of wants? Give your own example.
Steps only
In barter, both people must want what the other offers at the same time.
Answer
In barter, both people must want what the other offers at the same time. Money removes this problem because each person can sell to anyone and use the money to buy something else. For example, a potter can sell a pot for money and later use it to buy vegetables, without finding a vegetable seller who wants a pot.
Question 3
How do banks connect people who have surplus money with people who need money?
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Banks accept deposits from people who have extra money and pay them interest.
Answer
Banks accept deposits from people who have extra money and pay them interest. They keep some funds available for withdrawals and lend much of the rest to borrowers at a higher interest rate. The difference helps cover costs and supports the bank’s work. Banks therefore link savers and borrowers.
Question 4
What is written at the top of a ₹10 note? Explain the statement.
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The note states, “I promise to pay the bearer the sum of ten rupees.” It is issued under the authority of the Reserve Bank of India, and the promise represents the government-backed value of the note.
Answer
The note states, “I promise to pay the bearer the sum of ten rupees.” It is issued under the authority of the Reserve Bank of India, and the promise represents the government-backed value of the note. People accept it as money because it is legal currency and widely trusted.
Question 5
Why should formal sources of credit be expanded in India?
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Formal sources such as banks and cooperatives are regulated and usually charge lower interest than informal lenders.
Answer
Formal sources such as banks and cooperatives are regulated and usually charge lower interest than informal lenders. Expanding them can reduce people’s dependence on costly loans, prevent unfair terms and give poorer households better access to credit for farming, education and small businesses.
Question 6
What is the basic idea behind self-help groups (SHGs) for poor people?
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Members—often women—save small amounts regularly and lend from the group’s pooled savings.
Answer
Members—often women—save small amounts regularly and lend from the group’s pooled savings. The group decides who receives loans and on what terms. After building a record, it may borrow from a bank. This can provide credit without individual collateral and strengthen members’ financial independence.
Question 7
Why might banks refuse to lend to some borrowers?
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Banks may worry that a borrower has no collateral, irregular income, little credit history or limited ability to repay.
Answer
Banks may worry that a borrower has no collateral, irregular income, little credit history or limited ability to repay. The loan may also be small or costly to process. Banks should assess risk fairly and improve access, rather than excluding people only because they are poor.
Question 8
How does the Reserve Bank of India supervise banks, and why is this necessary?
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The RBI monitors banks, sets rules for lending and deposits, checks that banks maintain required reserves, and oversees their financial records and conduct.
Answer
The RBI monitors banks, sets rules for lending and deposits, checks that banks maintain required reserves, and oversees their financial records and conduct. This supervision protects depositors, supports safe lending and helps keep the banking system stable.
Question 9
Analyse the role of credit in development.
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Credit lets households and businesses invest before they have all the money in hand.
Answer
Credit lets households and businesses invest before they have all the money in hand. A farmer can buy seeds, a student can pay fees and a small business can purchase equipment. If the activity succeeds, income and production may rise. If credit is too costly or the activity fails, debt can worsen poverty. Fair terms and reliable income opportunities matter.
Question 10
Manav needs a loan for a small business. How should he decide between a bank and a moneylender?
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Manav should compare the interest rate, all fees, repayment dates, collateral, required documents and penalties.
Answer
Manav should compare the interest rate, all fees, repayment dates, collateral, required documents and penalties. He should check the total amount he will repay and whether the business can earn enough to meet each payment. A bank is often cheaper and regulated, while an informal lender may be quicker but costlier. He should choose a safe, affordable loan and avoid borrowing more than needed.
Question 11
For small farmers: (a) why might banks hesitate to lend? (b) what other sources are available? (c) give an example of unfavourable credit terms. (d) suggest ways to obtain cheaper credit.
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(a) A small farmer may lack collateral, formal records or a steady income.
Answer
(a) A small farmer may lack collateral, formal records or a steady income. (b) Sources include cooperatives, self-help groups, banks, relatives, traders and moneylenders. (c) A moneylender may charge very high interest or require the farmer to sell crops at a low price. (d) Expand bank and cooperative loans, use SHGs, improve crop insurance and documentation, and provide affordable seasonal credit.
Question 12
Fill in the blanks: most informal credit goes to ___ households; ___ borrowing costs raise debt; ___ issues notes; banks pay lower interest on loans than on ___; an asset pledged as a guarantee is ___.
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(i) Poor.
Answer
(i) Poor.
(ii) High.
(iii) The Reserve Bank of India.
(iv) Deposits.
(v) Collateral. These words describe who relies on informal loans, what raises repayment burdens, who issues currency, how banks earn, and what secures a loan.
Question 13
Choose: (i) who decides SHG savings and loan matters? (ii) which is not a formal credit source: banks, cooperatives or employers?
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(i) The members decide—option (b).
Answer
(i) The members decide—option (b).
(ii) Employers are not a formal institutional source of credit in this classification—option (c). Banks and cooperatives are formal sources.
Question 14
Suggest loan purposes for the listed urban workers and decide who may get a bank loan. Explain your criterion.
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Possible needs: a construction worker may need housing or medical costs; a computer-literate graduate may need fees or a computer; a government employee may need a home or vehicle loan; a migrant worker may need relocation costs; a household maid may need health or housing costs; a small trader may need stock; an autorickshaw driver may need a vehicle; a factory worker may need living costs while seeking work.
Answer
Possible needs: a construction worker may need housing or medical costs; a computer-literate graduate may need fees or a computer; a government employee may need a home or vehicle loan; a migrant worker may need relocation costs; a household maid may need health or housing costs; a small trader may need stock; an autorickshaw driver may need a vehicle; a factory worker may need living costs while seeking work. A bank is more likely to lend when income, repayment ability and records are clear, but access should not depend unfairly on occupation or wealth alone.