NCERT Solutions for Class 10 Economics Chapter 3 Money and Credit
NCERT Solutions for Class 10 Economics Chapter 3 covers Money as a Medium of Exchange, Modern Forms of Money, Loan Activities of Banks, Terms of Credit, Formal vs Informal Credit Sectors in India, and Self-Help Groups (SHGs).
Overview of Topics & Subtopics (Click to Jump)
1. Money as a Medium of Exchange & Double Coincidence of Wants
Short Note:
• Barter System: System where goods were directly exchanged for other goods without the use of money.
• Double Coincidence of Wants: A crucial drawback of barter system where both parties have to agree to sell and buy each other's commodities. Money eliminates this need by acting as an intermediate medium of exchange.
2. Modern Forms of Money (Currency & Demand Deposits)
Short Note:
• Modern Currency: Paper notes and coins issued by the Reserve Bank of India (RBI) on behalf of the central government. Authorized legally as a medium of payment.
• Demand Deposits: Money deposited in bank accounts that can be withdrawn on demand. Payments can also be settled through cheques drawn on these deposits.
3. Loan Activities of Banks & Terms of Credit
Short Note:
• Bank Loan Process: Banks keep a small proportion of cash reserves (~15%) and extend the rest as loans to borrowers, earning interest income on the margin between borrowing and lending rates.
• Terms of Credit: Conditions including interest rate, collateral, documentation requirement, and mode of repayment.
• Collateral: An asset owned by the borrower (e.g., land, house, vehicle, bank deposit) pledged as guarantee to a lender until the loan is repaid.
4. Formal vs Informal Credit Sectors in India
Short Note:
• Formal Credit Sector: Includes banks and cooperative societies supervised by the Reserve Bank of India (RBI). Offers reasonable interest rates.
• Informal Credit Sector: Includes moneylenders, traders, employers, relatives, and friends. Unsupervised by any organization, charging exorbitant interest rates and pushing borrowers into debt traps.
5. Self-Help Groups (SHGs) for the Poor
Short Note:
• Self-Help Groups (SHGs): Consist of 15–20 members (usually women in rural areas) who pool small savings regularly.
• Benefits: Provides small low-interest loans without collateral, helps members become financially self-reliant, and acts as a social forum for discussing community issues.
Intext & Conceptual Questions
2. Money acts as an intermediary, allowing individuals to sell goods for cash and use that money to purchase any desired commodity or service independently.
2. It supervises the functioning of formal sources of loans (banks and cooperatives).
3. It ensures banks maintain minimum cash balances and extend credit to small borrowers and farmers, not just rich businesses.
Textbook Chapter End Exercise Questions
1. Collateral acts as a financial security/guarantee for the lending institution.
2. If the borrower defaults or fails to repay the loan, the bank reserves the legal right to sell the collateral asset to recover its loan amount.
| Formal Credit Sector | Informal Credit Sector |
|---|---|
| Supervised by Reserve Bank of India (RBI). | No governing body to supervise credit activities. |
| Charges low and fixed rates of interest. | Charges very high and arbitrary interest rates. |
| Requires documentation and collateral. | Does not strictly require collateral; relies on personal contacts. |
| Examples: Commercial Banks, Cooperatives. | Examples: Moneylenders, Traders, Relatives. |
1. SHGs are small community groups (15-20 members) that collect small regular savings from members.
2. Members can borrow small amounts at very low interest rates to meet immediate personal or agricultural needs.
3. After 1-2 years of regular savings, the group becomes eligible for bank loans without collateral requirement.
4. Empowers rural women financially, making them self-reliant and giving them a collective voice against domestic or social issues.
Read More & Chapter Resources
These short notes are designed for quick revision. Read the main points once, then use the related material below to practise the same chapter. Revising a concept and checking it with questions can make your preparation more focused.