SEBA Class 10 Social Science Chapter 12 in English Money and Banking

SEBA Class 10 Social Science Chapter 12 in English Money and Banking | Money and Banking Class 10 Question Answer | Class 10 Social Science Question Answer in English Chapter 12 As Per New Syllabus to each Chapter is provided in the list of SCERT, NCERT, SEBA Class 10 Social Economics Part 4 Chapter 12 Question Answer in English/Class 10 Social Chapter 12 Question Answer in English Money and Banking.

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Class 10 Social Science Chapter 12 Money and Banking

SEBA Class 10 Social Science Question Answer Chapter 12 Money and Banking। Social Science Guide for Class 10th Chapter 12 in English | Also Same NCERT Solutions for Class 10 Social In this post we have tried to explain to you that Class 10 Social Science Question Answer Chapter 12 in English. If you are a teacher or Student of English Medium, then this is for you. Notes for Class 10 Social Science In English Medium can be very beneficial। Ncert/Scert Social Class 10 Chapter 12 Please read this carefully. By studying this SEBA Class 10 Social Science Question Answer Chapter 12 carefully, you can get good marks in your upcoming examination.

Chapter 12 Money and Banking

Part: 4 Economics

TEXTUAL EXERCISE & ANSWERS

Very Short Answer Questions:

1. What is barter?

Ans: Barter is the direct exchange of commodities against commodities.

2. What is Money?

Ans: Money performs the function of a medium exchange.

3. Mention one important function of money.

Ans: Money acts as a standard of measurement of values of goods and services.

4. Give an example of non-legal tender money.

Ans: Cheque money is an example of non-legal tender money.

5. What is representative paper money?

Ans: When a paper money is issued against hundred percent reserve of gold or silver then it is known as representative or convertible paper money.

6. What is a bank?

Ans: Bank is a financial institution that deals in loans.

7. In which year was the Reserve Bank of India set up?

Ans: In 1935 the Reserve Bank of India was set up.

8. What is current deposit?

Ans: Current deposits or demand deposits refer to those deposits which are withdrawable by the depositor at any time.

SHORT ANSWER TYPE QUESTIONS

1. How does the lack of double coincidence of wants create problems in the barter system?

Ans: The barter system fails to work in the absence of double coincidence of wants. In any dynamic society, it is difficult to find two persons wants coinciding with each other. For the barter system to operate, the wants of two persons must coincide.

In other words, the goods offered by two persons must be acceptable to each other. To take a example, a person wants to acquire rice in exchange for cloth and another person wants to acquire cloth in exchange for rice. In this case, both the persons depend in each other and their wants coincide. In such a double coincidence of wants, the exchange will be possible. But if the owner of cloth wants mustard oil instead of rices, the wants of these two persons will not coincide and the barter exchange will not take place.

2. What is meant by store of value?

Ans: Store of value means the capacity to resume the value of commodities for an indefinite period. Store of value is one of the most important function of money.

3. Which characteristics of money is the most important one and why?

Ans: The most important characteristics of money is- Money must have general acceptability.

Because it must be acceptable as a medium of exchange.

4. What is liquidity of money?

Ans: Liquidity of money means direct and immediate convertibility of money into goods and services that the holder of money wants.

5. “Money is the common unit of measurement of the value of goods and services”. Explain

Ans: Money acts as a standard of measurement of values of goods and services. All economic goods have prices. The value in exchange expressed in terms of money is price. Money is the common unit of measurement. The value of all economic goods and services are expressed in prices only.

6. What is the difference between limited and unlimited legal tender?

Ans: Limited legal tender money is money which is acceptable upto a given value of a transaction. Transaction may be low value or high value transactions.

One the other hand, unlimited legal tender money is money which can be used as medium of exchange for transactions of any value.

7. What are the functions of the Regional Rural Banks?

Ans: The functions of the Regional Rural Banks are:

(a) To provide loans at low rate of interest to the villagers and liberate them from the clutches of the private money lenders who charge extremely high rate of interest.

(b) To mobilise rural savings and invest these in various productive activities.

8. How are the Non Banking Financial Institution different from the banks?

Ans: The Banks of NBFIS is also collect saving from the savers and advances these saying as loans to various people. But there are two main difference between the banks and the NBFIS.

First, the depositors can withdraw money from the banks through cheque. But NBFI depositors cannot do that.

Secondly, in case of banks there is the deposite Insurance Scheme to cover the risks of the depositors. But do not have such schemes.

LONG ANSWER TYPE QUESTIONS

1. Explain four demerits of the barter system.

Ans: There are four major disadvantages/demerits of the barter system:

(a) Lack of double coincidence of the wants: The barter system fails to work in the absence of double coincidence of wants. In any dynamic society, it is difficult to find two persons wants coinciding with each other. For the barter system to operate, the wants of two persons must coincide.

In other words, the goods offered by two persons must be acceptable to each other. To take a example, a person wants to acquire rice in exchange for cloth and another person wants to acquire cloth in exchange for rice. In this case, both the persons depend in each other and their wants coincide. In such a double coincidence of wants, the exchange will be possible. But if the owner of cloth wants mustard oil instead of rices, the wants of these two persons will not coincide and the barter exchange will not take place.

(b) Difficulties in the Measurement of value: The measurement of value was quite a problem in the barter system. In the barter system of exchange, there was no any common measure of value. In such a situation, it was no possible to express all goods by a particular measure of value. The value of a good, in general, depends on the intensity of wants. Since all goods do not have equal values, so how much quantity of a good could be needed to acquire some quantity of another good, there was no any definite measure to ascertain. In the absence of a particular measure of value, the system of exchange suffered from various complexities.

(c) Difficulty of Divisibility: The indivisibility of some goods created problems in the barter system. As some goods are non-divisible, the ex- change of these goods with other goods may not be beneficial. For example, it is not gainful to exchange an elephant for some quantity of rice because an elephant cannot be divided in terms of some quantity of rice. The lack of divisibility made exchange quite difficult in the barter system.

(d) Difficulty of Store: Saving is a part of earning. The people desire to save for future security, future transactions or future earnings. In the barter system, saving means storing of goods. But is was not possible to keep the goods in store for a long time. There are some goods which may be very easily perishable. The difficulty in storing was a major problem in the barter system.

2. Explain any four characteristics of money.

Ans: Money has-number of characteristics.

These are explained below:

(a) Money must have general acceptability: It must be acceptable as a medium of exchange. This is the most important characteristic of money. It is definitionally true.

(b) Money must have congizability: There should be absolutely no difficulty in identifying money. If money is not easily recognisable, transactions will naturally be problematic.

(c) Money must have durability: Lack of durability of commodity money was one of the major problems in the barter system. If money is perishable, money cannot be stored up. In that case, there will be no store of value. Saving will be impossible.

(d) Money must have homogeneity: In other words, money of equiva-lent value must be identical in all respects. If one ten rupee note is like a ribbon in size and another is a big as the size of a register book, there will be problems of selection and rejection. The bigger one may be rejected and the smaller one accepted. Therefore, all ten rupee notes must be perfectly identical in all respects. Similarly for money of other denominations.

(e) Money must have liquidity: Liquidity of money means direct and immediate convertibility of money into goods and services that the holder of money wants. In fact, compared to other assets, the degree of liquidity is the maximum in case of money.

Land, gold, silver other assets also have liquidity but their liquidity is less than that of money as these are not directly and immediately convertible into goods and services. For example, a plot of land cannot be instantly converted into goods and services. The plot of land has to be sold out and the money earned will be used to buy goods and services. Same is the case with gold, silver and other assets. The case is different with money.

(f) Money must have transferability: The volume of trade and commerce is expanding over time. The area of the market is being extended. It will be difficult to settle transactions, if money lacks transferability. In today’s money economy it is not even necessary to physically transfer money to settle transactions. Payment may be made through adjustment of bank accounts. Credit cards and debit cards are being increasingly used to settle transactions. Core banking facilities or online payment may also be made to settle transactions.

(g) Money must have divisibility: High value money may be converted into low value money. There is money to settle transactions of all values, high or low. Lack of divisibility of commodity money was another major problem of the barter system. Money can settle a transaction of 50 paise or a transaction of Rs. 50 crore.

(h) Money must have stability of value: If the value of money continues to fall all the time, money will fail to act as the store of value. In Germany when the value of money fell sharply or the price level rose quite rapidly, people eventually refused to accept German money and a new currency had to be introduced.

3. Explain four major functions of money.

Ans: Money performs four different function. These are discuss below:

(a) Medium of Exchange: Money is used as means of transactions of all goods and services. Money is thus, regarded as a medium of exchange. This is the main function of primary function of money. The buyers and sellers in the market exchange goods with the help of money. A buyer buys some amount of goods by making payment of a certain amount of money to a seller. Similarly, a seller receives some amount of money from the buyer by offering some amount of a goods. This is called exchange. It is because of the general acceptability of money that the exchange of any service or a commodity has been possible with the help of money.

(b) Measure of value: Money acts as a measure of value. The values of all goods and services are determined with the help of money. The amount of money which has to be paid to buy a commodity is the price of that commodity. In other words, the exchange value expressed in the form of money becomes the price of the commodity. The production cost and sale price or exchange value of all commodities are expressed in terms of money and, as such, money is the measure of value.

(c) Store of value: People like to keep a part of their earning as saving. The act of this saving is performed through money. This is because, money is highly durable and it si also easy to save money. Like any other commodities, money is not easily perishable. By its store, Money can be transformed into commodity. The people generally desire to store money for future security, future transaction and future income. It is, thus highly beneficial to store money for future uses.

(d) Standard of Deferred Payments: Money is not simply a medium of exchange or a measure of value or a store of value, money is the standard of deferred payments also. Money acts as the medium of all transactions like landing and borrowing. The modern economic system cannot run on the present day transaction activities only. A country’s production and trade and commerce have to depend, to a great extent, on the credit system. The major function of banks and other financial institutions is to supply credit. From these institutions, money is borrowed and invested in productive activities. An individual or even an organisation can borrow from banks. Money facilities the act of burrowing, lending and repayment of loans.

4. Is cheque money? Give reasons for your answer.

Ans: A cheque is not legal tender money. An individual may refuse to accept payment in cheque. There is no violation of the law of the land. A cheque is a claim against money. A cheque is encashed at the counter of the bank. Although cheque is not money yet the fact remains that cheque is being increasingly used as a means of payment not only in the developed but also in the developing countries.

5. Mention four problems associated with money.

Ans: The four problems associated with money. These are discussed below:

(a) When money lacks stability of value, quite a number of problems will arise in the economy. For example, when the value of money continues to fall (or which is the same thing as saying that the price level continues to rise) the consumers will have to spend more money to buy the same amount of goods and services from the market. People whose income is limited and fixed suffer the most under such circumstances. Similarly, when the value of money continues to rise (the price level continues to fall), the producers face losses because of which they may decide to cut down the level of produc- tion. As and when that happens, employment opportunities will also shrink.

(b) Money may be used as one of the instruments to facilitate the concentration of economic power and wealth. In an economy where money is everything money can easily become a means to acquire economic power.

(c) Weakness for money may well be the cause of the erosion of the social value system. Corruption, irregularities, injustices of all types are the end results of degrading values.

(d) When money takes the form of black money, the economy suffers in many different ways. For instance, the government loses considerable amount of revenue due to large scale tax evasion.

6. Explain any four functions of the central Bank.

Ans: The functions of the Central Bank are:

(a) Issue of Paper Currency: The Central Bank has the sole power of issuing paper currency. For this, the Central Bank has to maintain a gold reserve at some specific rate. In the present time, the reserve requirements have been liberalised. The notes are issued on the principle of minimum reserve system. The Reserve Bank of India prints notes on the basis of this principle. In the minimum reserve system, a certain minimum amount of gold and foreign exchange have to be kept in reserve.

(b) Banker to the Government: The Central Bank functions as the banker to the government. In this, the Central Bank acts as (a) the supplier of fund to the government, (b) the adviser to the government and (c) the agent to the government, In order to meet the budget deficit of the central government, the Central Bank provides fund by printing new currency notes. The Central Bank supervises the governmental debt. If needed, the Central Bank also extends economic advice to the government. The Central Bank maintains the accounts of revenue and expenditure of the government as the representative of the government.

(c) Banker to the Banks: The Central Bank is the banker to the banks. The commercial banks have to keep a portion of their deposits to the Central Banks. The Central Banks examines the accounts of the commercial banks. If necessary, the commercial banks can borrow from the Central Bank. The Central Bank also acts as the clearing house for the commercial banks. The Central Bank settle the claims of the commercial bank against each other. In times of financial cirsis of a bank, the Central Bank extends financial assistance. This is because, the Central Bank is the lender of the last resort of the commercial banks.

(d) Regulation of Credit: The Central Bank controls the credit system of a country. The money supply of the country increases and the price level moves up because of credit expansion by commercial banks. The rapid expansion of bank credit is the major cause of inflation in developing countries.The Central Bank can bring down the rate of inflation by adopting various regulatory measures.

(e) Development Functions: The Central Bank actively participates in economic development of developing countries. It is the duty of the Central Bank to make the country’s banking system development oriented. The Central Bank helps to increase the economic growth rate by linking the credit system of the country to productive activities. On the other hand, by pursu- ing a liberal monetary policy and lowering the rate of interest, the Central Bank encourages the commercial banks to expand their credit. It assumes a leading role in establishing financial institutions like development banks for long term credit to agriculture and industries.

9. Explain any two major functions of the commercial banks.

Ans: The major functions of the commercial banks are given below:

(1) Acceptance of Deposits: The commercial banks accept deposits from different individuals and organisations. The bank deposits are the amounts of savings kept in commercial banks.

The Bank deposits are of three types:

(a) current deposits or demand deposits,

(b) saving deposits and

(c) fixed deposits or time deposits.

The depositors can withdraw the current deposits at any time from the banks. The banks do not extend any interest on current deposits. In case of saving bank deposits, the banks extend interest but at a lower rate. The depositors cannot withdraw the entire amount of deposits at any time. The fixed or time deposits have a specified time period. The banks offer higher rates of interest for time deposits. The depositors can withdraw the fixed deposits, if they so desire, even before the date of maturity. But the banks deduct a portion of interest. The fundamental basis of commercial banking business is bank deposits. The banks cannot give more loans without increasing the amount of deposits.

(2) Advancing of loans. The commercial banks earn profits by lending money. The banks earn interest against loans. In general, the commercial banks provide short term loans. The Banks after deducting a portion from the primary deposits of the depositors as cash reserves, may utilise the rest amount of deposits for the purpose of lending. But the banks’ interest rate on lending changes from time to time. When the Central bank changes the rate of interest, the commercial banks also follow it. The Banks accept land, property, gold, government bonds etc. as securities against lending. The banks extend loans to agriculture, industries, businesses, individuals or organisations.

(3) Creation of Credit: The commercial banks create credit.

The bank deposits are of two types:

(a) Primary or cash deposits and

(b) Secondary or derivative deposits.

Money deposited by the depositors is called primary or cash deposit. The banks create secondary or derivative deposits from the primary deposits. The creation of this derivative deposites is known as credit creation. The banks advance loans to different individuals, organisations, businessmen, industries etc. from the primary deposits. But the banks do not lend in cash but lend in cheque. A bank opens a new account in the name of the borrower. This new account or deposit becomes the basis of another derivatives deposit. But in advancing loans, a specific cash reserve has to be deducted from the primary deposits. The amount that remains after substracting the cash reserve from the primary deposit, is called excess reserve. The commercial banks utilise the excess reserves for the purpose of lending. A number of derivative deposits of credits may be created from a single primary deposit. As bank deposits become the part of the total money supply of a country, so the commercial banks, through creation of credit, increase the supply of money.

(4) Other Functions: The commercial banks, in addition to the acceptance of deposits and advancement of loans, provide various other services. The banks perform various types of transactions for the benefit of their depositors. The banks make arrangement for payment of telephone, electricity and other bills of the depositors. The depositors can take the advantage of keeping their valuable ornaments and documents safely in the banks. Now a days, the people can buy valuable goods from the markets with the help of bank credit card or visa card. The people can transfer money easily from one place to another. The depositors may also receive bank services by sending instructions to the banks from their home. These have been possible because of internet and computer services. All these services of the commercial banks are called ‘utility services’.

8. Briefly explain any two functions of each of the following:

(i) IDBI.

Ans: (i) IDBI: The IDBI was set up in the year 1964.

This bank has two primary functions: (a) To offer financial assistance to the industries, (b) To develop the institutions that are related to industrial development of the country.

The bank offers direct loans to the various industries.

It also offers indirect loans for industrial development. For example the IDBI gives financial assistance to the state Financial Corporation, Industrial Development corporation, the commercial banks and such other institution. These institutions offers loans to the various industries.

Another important functions of the IDBI is to offer industrial loans at conce-ssional rule of interest to industries in the backward regions of the country.

The another functions of the IDBI is to take the initiative in creating entrepreneurship through various training programmes.

(ii) RRBS.

(ii) RRBS: Indian economy is highly dependent on agriculture. About 70% of India’s population live in rural areas. Agriculture is the principal means of livelihood of the people. The commercial banks are fundamentally the profit based financial institutions inspite of the fact that they also actively participate in developmental programmes. So, to fully meet the rural credit need, it is necessary to have specialised banking services. With

this aim in view, the rural bank scheme was adopted in India, in 1976. In Assam also, five regional rural banks were established in 1976.

They are:

(a) Lakhimi Gaonlia Bank, (b) Pragjyotish Gaonlia Bank, (c) Subansiri Gaonlia Bank, (d) Cachar Gaonlia Bank, (e) Dihangi Gaonlia Bank.

These banks performs two main functions:

(a) To provide loans at low rate of interest to the villagers and liberate them from the clutches of the private money lenders who change extremely high rate of interest.

(b) To mobilise rural saving and invest these in various productive activities.

(iii) NABARD.

(iii) NABARD: National Bank for Agriculture and Rural Development (NABARD):

NABARD was established in the year 1982. The functions performed by the Reserve Bank of India in the field of rural credit have all been transferred to NABARD. The main functions of NABARD are:

(i) NABARD is the apex financial institutions among all the institutions related to investment and production in the rural areas.

(ii) NABARD streamlines the process of offering loans, monitors and evaluates the progress of various rural schemes and organises training programmes for the beneficiaries and

(iii) NABARD coordinates the various schemes for rural development initiated by the central government, the state governments, the Reserve Bank of India and so on.

(iv) SIDBI.

(iv) SIDBI: The bill to set up SIDBI was passed in 1989 and SIDBI started its operations from 1990. The Headquarters of SIDBI is at Lucknow.

The main functions of SIDBI are:

(i) to promote modernisation and applications of improved technology in small industries, (ii) to create markets for the products of the small indus- tries, (iii) to create more employment opportunities in the small industries in semi-urban areas and check the migration of population from these areas to the towns and cities; and (iv) to offer financial assistance to the State Financial Corporation, Industrial Corporation, Commercial banks, Cooperative banks and regional rural banks so as to enable these institutions to offer loans to the small industries. The full form of SIDBI is Small Industries Development Bank of India.

Multiple Choice Questions

Choose the right answer:

1. The State Bank of India is basically a-

(a) Central Bank.

(b) Commercial Bank.

(d) Agricultural Development Bank.

Ans: (b) Commercial Bank.

2. The Central Bank of India is-

(a) State Bank of India.

(b) Reserve Bank of India.

(d) United Bank of India.

Ans: (b) Reserve Bank of India.

3. In the following types of money the non-legal tender money is-

(a) Paper money.

(b) Cheque money.

(d) Fiat money.

Ans: (b) Cheque money.

4. Which one of the following is an agricultural development Bank?

(a) NABARD

(b) RBI

(d) IDBT

Ans: (a) NABARD.

5. Which one of the following bank was first set up India in 1770?

(a) Reserve Bank of India.

(b) Bank of Hindustan.

(d) Small Industries Development Bank of India.

Ans: (b) Bank of Hindustan.

Very Short Questions and Answers:

1. What is barter system?

Ans: The system in which goods are exchanged for goods is called barter system.

2. What is the name of the Central Bank of India?

Ans: The Reserve Bank of India.

3. In which year 19 commercial banks of India were nationalised?

Ans: In 1969, 19 July.

4. What is the first stage in the evolution of money?

Ans: Barter system is the first stage in the evolution of money.

5. What is the second stage in the evolution of money?

Ans: Animals were the second stage in the evolution of money.

6. What is the third stage in the evolution of money?

Ans: Metallic standard as gold and silver were the third stage in the evolution of money.

7. What is the fourth stage in the evolution of money?

Ans: Coinage such as gold and silver were the fourth stage in the evolution of the money.

8. What is the fifth stage in the evolution of money?

Ans: Paper money is the fifth stage in the evolution of money.

9. Who was Geoffrey Crowther?

Ans: Geofferey Crowther was a monetary economist.

10. Who used the term ‘Bank’ in place of Monte?

Ans: The Germans used the term ‘Bank’ in place of Monte.

11. Where was the first bank set up in India?

Ans: The first bank set up in India was in 1770.

12. Name the first bank set up in Assam?

Ans: The first bank of Assam was Gauhati Bank set up in 1926.

13. Name the first bank of India.

Ans: The first bank of India was Bank of Hindustan.

14. What is Central Bank?

Ans: The Central Bank is the head of all the banks in a country. All the banks are to operate as per instructions issued by the Central Bank.

15. Which is the world’s oldest Central Bank?

Ans: The Riksbank of Sweden is the world’s oldest Central Bank.

16. Which bank is called the bankers bank?

Ans: The Central Bank is the bankers Bank.

17. Which bank is the financier, advisor and agent to the government?

Ans: The central bank is the financeir advisor and agent to the government?

18. When was Riks bank set up?

Ans: Riks bank se tup in the year 1665.

19. When was IDBI set up?

Ans: IDBI set up in the year 1968?

20. IDBI stands for?

Ans: Industrial Development Bank of India.

21. When was RRB. set up?

Ans: RRB set up in the year 1975.

22. RRB stands from?

Ans: Regional Rural Bank.

23. How many RRBS were set up for the first time in 1975?

Ans: There are 5 RRBs were set up for the first time in 1975.

24. How many RRBS were set up in India in the year, 2014

Ans: There are 57 RRBs were set up in India in the year, 2014.

25. When was NABARD established?

Ans: NABARD was established in the 1982.

26. NABARD stands for?

Ans: National Bank for Agriculture and Rural Development.

27. When was SIDBI established?

Ans: SIDBI was established in the year 1990.

28. When was the Bill to set up SIDBI passed?

Ans: The Bill to set up SIDBI was passed in 1989.

29. SIDBI stands for?

Ans: Small Industries Development Bank of India.

30. Where is the Headquarters of SIDBI?

Ans: The Headquarters of SIDBI is at Lucknow.

31. How John Hicks defined money?

Ans: According to John Hicks, money is defined by its functions, to him, “anything is money which is used as money.”

32. How Walker defined money?

Ans: According to Walker, “money is that money does.”

33. How Geoffry Crowther defined money?

Ans: According to Geoffry Crowther money as “Anything that is gener- ally acceptable as a means of exchange and at the same time, acts as a measure and store of value.”

34. How Samuelson defined Central Bank?

Ans: According to Samuelson, the Central Bank is the bank of the banks.

35. What is the name of the Central Bank of England?

Ans: The name of the Central Bank of England is ‘Bank of England.”

36. What is the name of the Central Bank of USA.

Ans: The name of the Central Bank of USA is the ‘Federal Reserve System.”

37. Write the name of the market in India where the barter system is still in operation.

Ans: Jonbeel Mela in the Morigaon District of Assam.

38. ICICI stands for?

Ans: Industrial Credit and Investment Corporation of India.

39. What is near money?

Ans: Assert which are close substitute of money are near money.

40. Why does cheque money is called near money?

Ans: A cheque money is called ‘near money’ because it can be transformed into money at any time through it is not an actual money.

41. Why is Central Bank called the lender of the last resort?

Ans: The Central Bank is called the “lender of last resort” because at the time of financial crisis the Central Bank provides financial accommodation to commercial banks.

42. What is market economy?

Ans: A market economy is one when the demand and supply forces determine the output and the price of commodities and services.

43. What is Cash Reserve Ratio?

Ans: It refers to the minimum percentage of a banks’s total deposits required to be kept with the Central Bank.

44. What is NABARD?

Ans: NABARD is the Apex financial institution among all the institution related to investment and production in the rural areas.

45. What is credit creation?

Ans: Credit Creation refers to the process of creating secondary deposits.

Short Questions and Answers:

1. What is NEDFI? When is was established? Where is the head office of NEDFI.

Ans: The full form of NEDFI is the North-East Development Finance Corporation.

This corporation was established in Feb, 23 of 1996.

Guwahati is the head office of NEDFI.

2. What are the two major Industrial Bank of Assam? Mention the contribution of one the Bank in Assam.

Ans: The two major Industrial Banks are:

(i) Assam Financial Corporation.

(ii) North East Development Finance Corporation.

The contribution of NEDFI are:

(i) The main active of NEDFI is to speed up industrial development of the backward states of the North-East Region. (ii) The authorised capital of the corporation was Rs 500 crores.

3. Mention two evils of money?

Ans: The two evils of money are:

(a) The income distribution pattern of money economy is uneven.

(b) Some people, in order to acquire more and more money, become greedy and corrupt.

4. Mention the name of two rural bank?

Ans: The two rural banks are:

(a) Lakhimi Gaonlia Bank.

(b) Pragjyotish Gaonlia Bank.

5. Mention two weakness of co-operative Bank of India?

Ans: The two weakness of co-operative Banks of India are:

(a) The village cooperative societies are financially weak, their fund is very small.

(b) The non realisation of outstanding loans in time goes on increasing.

6. What do you mean by commercial Bank? Mention two names of Commercial Banks.

Ans: The commercial banks are the financial institutions which accept deposits from the individuals or organisations and give loans to some other individuals, organisations or business institution.

The two names of commercial Banks are:

(i) SBI.

(ii) UBI.

7. Write two main functions of Regional Rural Banks.

Ans: The two main functions of Regional Rural Banks are:

(a) To fulfil the need of rural credit.

(b) To supply cheap credit to the agriculture or rural area.

8. Write three objects of bank nationalisation in India.

Ans: The three objects of bank nationalisation in India are:

(i) To supply cheap credit to agriculture.

(ii) To rapidly expand the bank branches in rural and backward areas.

(iii) To abolish the private ownership and monopoly control of bank.

9. Mention two disadvantages of the barter system.

Ans: The two disadvantages of the barter system are:

(i) Difficulty of Store

(ii) Difficulty of Divisibility.

10. Name the states in the evolution of money.

Ans: There are five stages in the evolution of money. There are:

(i) Barter system.

(ii) Animal standard.

(iii) Metallic standard.

(iv) Coinage.

(v) Paper money.

11. Write briefly the first stage in the evolution of money?

Ans: The first stage in the evolution of money is the barter system where commodities are exchanged with other commodities as the medium of exchange.

12. Write briefly the second stage in the evolution of money?

Ans: The second stage in the evolution of money is the animal standard where animals, particularly goats were used as a medium of exchange.

13. Write briefly the third stage in the evolution of money?

Ans: The third stage in the evolution of money is the metallic standard where gold and silver were used as the medium of exchange. But this system arise the security risk of carrying the valuable metals from one place to another.

14. Write briefly the fourth stage in the evolution of money?

Ans: The fourth stage in the evolution of money is the coinage where gold and silver coins were used as a medium of exchange in the process of trade and commerce.

15. Write briefly the fifth stage in the evolution of money?

Ans: The fifth stage in the evolution of money is the paper money. It is easy to carrying the one place to another place.

16. ‘What is money’ According to Geoffrey Crowther?

Ans: According to Geoffrey Crowther anything that is generally acceptable as a medium of exchange is money.

17. Mention two primary functions of money.

Ans: The two primary functions of money are:

(a) Medium of Exchange.

(b) Measure of Value.

18. Mention two secondary functions of money?

Ans: The two secondary functions of money are:

(a) Store of value.

(b) Standard of Deferred Payments.

19. Why as metallic standard ran into problems?

Ans: The metallic standard is the third state of evolution of money ran into problems because of security risk of carrying the valuable gold and silver from one place to another.

20. What are the different types of money in a broad sense.

Ans: In a broad sense of money is two types:

(a) Money of account.

(b) Money proper.

21. What is money-of-account? Give example.

Ans: Money through which the accounts of all purchases, sales and transactions of a country is expressed is called money of account.

The accounts of public borrowing measurement of price level, the measurement of purchasing power of money externally, the measurement of value of foreign currencies are undertaken through money of account.

In India unit of account is expressed in terms of ‘rupee’ and in America in terms of ‘dollar’.

For example, rupee of India and dollar of the USA are money of accounts.

22. What is meant by money proper/Actual money? Give example.

Ans: Money is circular among all the people of a country is actual money. All transaction are undertaken with this money.

For example, the paper money and metallic money are money proper

23. What is Commodity Money?

Ans: In the barter system commodity was the medium of exchange. It was both money of account and money proper.

24. What is Animal Money? Give example.

Ans: Animals were used as money, particularly goats. Goat was the medium of exchange. It was money proper as well as money of account.

25. What is Metallic Money?

Ans: Money made of metals such as copper, silver, gold etc. is called metallic money.

26. How many types of Metalic Money?

Ans: There are 2 types of metallic money:

(a) Full value money.

(b) Token money.

27. What is full value money?

Ans: The metallic value or intrinsic value of money is equal to its face value, it is called full value money.

The full value money is also called standard money.

28. What is Token Money?

Ans: When the face value of money is higher than its metallic value it is called token money.

All metallic money circulated in the present time, is token money.

29. What is paper Money?

Ans: Paper money has replaced metallic money as it is easy to carry. Paper money was convertible or representative paper money as it was convertible into gold or silver of equivalent value.

30. How many types of paper Money?

Ans: There are three types of paper Money:

(a) Representative Paper Money.

(b) Convertible Paper Money.

31. What is Representative Paper Money?

Ans: When 100% gold or metallic reserves are maintained against the circulation of paper money it is called Representative Paper Money.

32. What is Convertible paper money?

Ans: The paper money which can be converted to metallic money or metals is called convertible paper money.

33. What is Inconvertible paper money?

Ans: The paper money which can not be converted to metallic money or metals is called Inconvertible paper money.

34. What is Legal Tender Money? Give example.

Ans: When the general acceptability of money as a medium of exchange is supported by law of the land it is legal tender Money.

For example, the paper money and metallic money, as circulated in India is Legal Tender Money.

35. How many types of Legal Tender Money?

Ans: There are two types of Legal Tender Money:

(a) Limited Legal Tender Money.

(b) Unlimited Legal Tender Money.

36. What is Limited Legal Tender Money?

Ans: Limited Legal Tender Money is money where is acceptable upto a given value of a transaction.

37. What is Unlimited Legal Tender Money?

Ans: Unlimited legal tender money is money which can be used as a medium of exchange for transaction. For example- Rs. 10 crore, Rs. 100 crore and so on.

38. What is Non Legal Tender Money?

Ans: Money which used in transactions but does not possess any legal authority, is non-legal tender money. For example, cheque money.

39. What is Fiat Money? Give example.

Ans: Money issued by the authority of the government is fiat money. The paper money and Metallic money are example of fiat money.

39. What is cheque Money?

40. What is Standard Money?

Ans: Standard money is a unit of money. The value of others units of money are related to it.

In India, the Rupee is the standard Money.

41. What is Hot Money?

Ans: Money that goes out of the country in the face of socio-economic disorder and uncertainly in the country is hot Money.

42. What is Dear Money?

Ans: Dear Money results from central banking action.

For example, India’s Central Bank, the Reserve Bank of India raises its rate of interest the member banks will borrow less from the RBI.

43. What is Easy or Cheap Money?

Ans: When the Central Bank reduces the interest rate the member banks borrow more from the Central Bank and lend more to their borrowers. Money thus becomes cheaper. It is cheap money policy.

44. What is black Money?

Ans: Black Money is not a distinct type of money. Any money can become black money when it is generated through economic offence.

For example, tax evasion is an economic offence.

45. What is High Power Money?

Ans: Out of the total money supply in the country that part which is under the direct control of the country Central Bank is high power money. By means of the money the Central Bank can increase or decrease the money supply in the country.

46. What is Central Bank? Give example.

Ans: The Central Bank is the head of all the banks in a country. All the banks are operate as per instruction issued by the Central Bank. For example- (a) The Riksbank of Sweden, (b) Reserve Bank of India.

47. What is commercial Banks?

Ans: The banks which provide service to the public directly or indirectly by conducting activities related to savings, credit, trade etc. under the direction of Central Bank are generally called Commercial Banks.

48. Mention three other functions of the Central Bank.

Ans: The three other functions of the central bank are:

(a) To manage and control the foreign exchanges.

(b) To collect the various financial data of the country and publish them.

49. Mention four other functions of the commercial Bank.

Ans: The four other functions of the Commercial Bank are:

(a) The commercial banks acceptance of deposits and advancement of loans, provide various other services.

(b) The banks perform various types of transactions for the benefit of their depositors.

(d) The depositors can take the advantage of keeping their valuable ornaments and documents safely in the bank.

Long Questions and Answer:

1. What is ‘Commercial Bank’? Mention two important commercial bank of India.

Ans: The commercial banks are the financial institutions which accept deposite from the individuals or organisations and give loans to some other individuals, organisations or business institutions. These banks may be established in the public sector or in the private sector. Some of the commercial banks of India are private sector banks and the rest are the nationalised banks. In 1969,14 major commercial banks of India were nationalised. Before this, all banks were private sector banks, except the State Bank of India. In all countries of the world, excluding the United States of America, the commercial banks have large number of branches. In the USA, because of unit banking system, the banks do not have branches. Activities of the commercial banks have been rapidly extended in modern time.

The functions and important of Commercial Bank of India are:

(a) The Commercial Bank mobilises savings.

Savings are of three types:

(i) Current saving or deposits.

(ii) Fixed saving or time deposits.

(iii) saving deposits.

Current savings or deposits may be withdrawn by the saver or depositor at any time. Fixed or time deposits cannot be withdrawn like current depos- its, the depositor has to give prior intimation to the bank before he or she withdraws the savings. In case of savings deposits a part can be withdrawn as and when necessary but the other part can be withdrawn only with the banks permission.

In India, according to Census 2001, only 36 percent of India’s total popu- lation had bank accounts, In 2011, it increased to 59 percent. By 2014 (Au- gust) 210.5 million Indians had bank accounts. The number is still rising.

(b) The commercial bank offers loans. Farmers, artisans, industrialists thelawallahs, rickshaw pullers and others receive loans.

The proper utilisation of bank loans improves the economic status of the people.

Generally, the commercial bank does not offer long term loans. Long term loans mean that the bank has to part with savings for a longer period of time This may create a problem for the bank. The bank will not be in a position to release the savings to the depositor when he or she comes to withdraw money People may lose confidence in the bank. Ultimately, the bank may even fail or go bankrupt.

(c) The commercial banks as a whole can create credit money. On the basis of the primary or passive deposits the banks can create derivative or active deposits. The savings deposited with the bank by a saver is the primary or passive deposit. It is passive because it is the saver who takes the first step, the bank is passive. On the country, derivative or active deposits are created by the commercial banks. A part of the primary or passive deposits is ratained by the bank. The banks offer the other part as loans to different sections of people in the society. The proces of credit creation starts as soon as the banks begin to offer loans.

(d) The commercial banks also perform certain miscellaneous functions. Valuable ornaments, important documents and so on may be kept in the lookers of the bank for safe custody. Some of the banks may also function as the trustee of the property of the customer or depositor.

2. What is Barter System? Mention two difficulties of Barter System.

Ans: The system in which goods are exchange for goods is called barter system.

(a) The difficulties of barter system are discuss below:

(c) Difficulty of Divisibility: The indivisibility of some goods created problems in the barter system. As some goods are non-divisible, the ex-change of these goods with other goods may not be beneficial. For example, it is not gainful to exchange an elephant for some quantity of rice because an elephant cannot be divided in terms of some quantity of rice. The lack of divisibility made exchange quite difficult in the barter system.

3. Mentions four evils of money.

Ans: The four Evils of Money are:

(i) Firstly, money may lose stability in its value.

(ii) Secondly, the income distribution pattern of Money economy is uneven. The gap between the rich and the poor goes on widening because of unequal distribution of money, income and consequently, wealth gets concentrates in the hands of few people.

(iii) Thirdly, some people, in order to acquire more and more money, become greedy and corrupt.

The lust for money leads to social crimes and degradation of moral values in the society.

(iv) Fourthly, One major problem of money economy, is the increase in the volume of unaccounted money or black money which is linked with economic crimes like take evasion etc.

4. Mention three role of money?

Ans: The three role of money are:

(a) Money makes exchange easier. It has removed the difficulties of the barter system.

(b) The price system is an important characteristic of a market centred or even a market friendly economy. The price system is dependent on the supply of money. (A market centred economy is one where the demand and supply forces determine the output and the price of commodities and services.)

(c) Even in a system where the administrative decisions of the government determine the price and output of commodities and services, and not their demand and supply, the value of output in that system is expressed in terms of money. Without money, no economic system can operate.

5. Discuss briefly the origin of banking.

Ans: According to Geoffrey Crowther, the monetary economist, the busi- nessmen, the gold merchants and the money lenders are the ancestors of banks. In the middle ages, when the Bank of Venice was set up in Italy, the world bank, began to gain wide currency. As there was constant warfare among the city states in Italy the states were in need of finance. To mobilise resources the states appointed commissioners. These commissioners were known as Monte. During those days large areas in Italy were under the GermAns: The Germans used the term ‘Bank’ in place of Monte. In Italy, this word was banco, in France, banke and in England, bank. The Bank of Hindustan the first bank in India was set up in 1770. The first bank in Assam to be set up entirely on local capital mobilisation was the Gauhati Bank. This bank was set up in 1926.

6. What is central Bank? Mention four functions of Central Bank.

Ans: The Central Bank is the apes governmental bank of a country. The Central Bank manages the country’s monetary system, regulation the commercial banks and other financial institutions and takes the responsibility of control of money and credit in order to fulfil the objective of economic development and economic stability. It assmness the most important position in the money market of a country. The Central Bank is the supervisor, regulator and director of the commercial banks. According to Samuelson, the Central Bank is the bank of the banks. Its duty is to control the country’s monetary system and money supply. The Reserve Bank of India is the Central Bank of India. The Bank of England is the Central Bank of England and the Federal Reserve system is the Central Bank of USA.

Some functions of Central Bank are:

(a) The Central Bank issues currency: This is the monopoly right of the central bank as no other bank in the country enjoys this right

(b) The Central Bank controls the volume of credit: Credit money constitutes a big chunk of total money supply. The quantity of credit money depends on the lending capacity of the commercial banks. The Central bank adopts credit control measures to regulate the lending capacity of the commercial banks.

(c) The Central bank is the bankers bank: The Central bank examines the account of all the member banks. The Central bank is also the friend in need to all other banks. Whenever the banks are in a financial crisis, it is the Central Bank that comes to their help.

(d) The Central bank is the financier, advisor and agent to the government: The Central Bank is the financier to the government. The government faces a budgetary deficit when the aggregate expenditure shown in the budget get exceeds the aggregate revenue to be earned by the government. This deficit is removed when the Central Bank prints new money and makes it available to the central government. The Central Bank is the adviser to the government. The bank offers its own suggestions to the government to make the income policy, tax policy, trade policy and the like more effective and realistic. The Central Bank is also the agent of the government. It maintains the accounts of income and expenditure of the government.

7. Write short notes:

(a) RRBS

Ans: RRBS (Regional Rural Bank System): Indian economy is highly dependent on agriculture. About 70% of India’s population live in rural areas. Agriculture is the principal means of livelihood of the people. The commercial banks are fundamentally the profit based financial institutions, inspite of the fact that they also actively participate in development programmes. So, to fully meet the rural credit need, it is necessary to have specialised banking services. With this aim in view, the rural bank scheme was adopted in India, in 1976. In Assam also, five regional rural banks were established in 1976. They are- Lakhimi Gaonlia Bank, Pragjyotish Gaonlia Bank, Subansiri Gaonlia Bank, Cacher Gramin Bank and Dihangi Gaonlia Bank. By supplying cheap credit to the agriculturists and small artisans in the rural areas, the regional rural banks have been able to establish themselves as the banks of the weaker and backward classes. All the regional rural banks of Assam have been named as the Assam Gramin Vikash Bank, in 2006.

(b) Co-operative Banks

Ans: Co-operative Banks: The Cooperative Societies Act was adopted in India in 1904 and with the Act the foundation of co-operative movement was laid in the country. The primary level co-operative agricultural credit societies were established under the Co-operative societies Act of 1912 There are several types of co-operative credit societies in India.

They are grouped into two:

(i) agricultural and (ii) non-agricultural.

The agricultural credit societies have taken a leading role in the fields of credit. They supply both short term and long term credit. The short term agricultural credit societies fulfil the demand for short term credit.

They are of three types:

(a) Apex level- the state co-operative bank,

(b) District level- the central co-operative banks and

The land development banks provide long term loans.

The top of the co-operative banks in a state is the state co-operative bank. Each state of India has a state co-operative bank, In Assam, the Assam co-operative Apex Bank Ltd. was established in 1948. The primary, the Central and other co-operative societies can get the membership of the state co- operative bank. The general public can also become its members. Like other banks the state co-operative bank also performs the functions of accepting of deposits and advancing of lo

Ans: As there is no district level Central cooperative bank in the state, Assam has two tier cooperative system the state co-operative bank and the primary cooperative credit societies. The primary cooperative credit societies constitute the basis of agricultural credit.

The state cooperative bank supervises the activities of the central cooperative banks and the primary credit societies. This bank also acts as the coordinating bank between the Central cooperative banks and the primary agricultural credit societies. The state co-operative bank supplies fund to different co-operative organisations of the state. The non-credit co-operative societies help in marketing of agricultural produce, handloom products and handicrafts.

(c) Development Banks

Ans: Development Banks: The supply of capital is essential for industrial development. Without adequate supply of capital, it is difficult to establish large industries. The commercial banks in India generally provide short term credit. But long term credit is necessary for the establishment and expansion of large industries. With this realisation. the government of India, in addition to commercial banks, put emphasis on the establishment of development banks. Accordingly, under the guidance of the Reserve Bank of India, the non-bank financial institutions were established.

The development banks are not the general class of banks. These banks provide specialised services in economic and industrial development. Two main objectives of the development banks are (a) to perform banking services through extension of credit and (b) to promote economic development through various other services.

The development banks are quite different from the commercial banks. (a) The development banks do not accept deposits from the general public but the commercial banks accept such deposits. (b) The development banks extend long term credit, while the commercial banks extend short term credit. (c) The development banks, as compared to the commercial banks, perform various promotional activities for industrial development in addition to their supply of fixed capital.

The main functions of the development banks are:

(1) To supply medium term and long term credit to industries.

(2) To supply risky capital.

(3) To underwrite new issues.

(4) To act as guarantor for term loans.

(5) To make arrangement for loans in foreign exchanges.

(6) To provide technical advice to industrial establishments.

(7) To identify projects for investment.

(8) To prepare report of evaluation and scrutiny of development of the investment projects. (9) To provide market information and management services.

The development banks of India are divided into two major categories:

(a) agricultural development banks and (b) industrial development banks.

(a) Agricultural Development Banks:

(1) All India level National Bank of Agriculture and Rural Development (NABARD)

(2) State level-State Land Development Banks.

(3) Local level-Primary Land Development Banks and branches of state Land Development Banks.

(b) Industrial Development Banks:

(1) Some major industrial development banks at all India level are:

(a) Industrial Finance Corporation of India (IFCI)

(b) Industrial Development Bank of India (IDBI)

(d) Industrial Reconstruction Bank of India (IRBI)

(2) Two major industrial development banks of state level are-

(a) State Finance Corporations (SFC) and

(b) State Industrial Development Corporation (SIDC)

8. Discuss briefly the role of Commercial Banks in Economic Development.

Ans: The commercial banks assume a special role in economic development of developing countries. In the economic development of a developing country like India also the position of the commercial banks is very significant. A country’s credit system is a major element of its domestic production. On the other hand, the increase of saving is also equally important for capital formation. The commercial banks can fulfil these two important aspects of economic development. In the present time, the commercial banks have laid emphasis upon the mebilisation of saving through expansion of branches and introduction of various saving schemes. With the help of credit sup- plied by banks, there has been a rapid expansion of agriculture, industries and trade and commerce.

The bank credit being productive in nature, the volume of production has rapidly increased. By taking the advantage of bank loans, the educated youth have been able to take up self-employment schemes. Under the liberal monetary policy of the Central Bank, the commercial banks reduce the lending rate and extend credit facilities at low interest rate to developmental activities. By extending cheap credit to small artisans, fishermen, small traders and other backward classes in the rural areas on priority baris, the commercial banks have been able to remove, to a great extent, the shortage of rural credit. Moreover, through opening of new sources of income the commercial banks have helped in the alleviation of poverty. By expanding branches in the villages and in other backward areas, the commercial banks have extended the banking services among the common people.

9. Write a short notes on NBFIS:

Ans: Non Banking Financial Institution (NBFIS): Like the banks NBFIS also collect savings from the savers and advances these savings as loans to various people. But there are two main differences between the banks and the NBFIS. First, the depositors can withdraw money from the banks through cheque; NBFI depositors cannot do that. Secondly, in case of banks there is the Deposit Insurance Scheme to cover the risks of the depositors; NBFIs do not have such schemes.

NBFIs are required to be registered with the Reserve Bank of India. Many NBFIs not registered with the RBI cheat the depositors as they suddenly vanish leaving no trace of their existence.

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