Questions
5
Q1
How does money solve the problem of double coincidence of wants?
Money acts as a common medium of exchange, so a person can sell goods or labour for money and use that money to buy something else. This removes the need for both parties to want exactly what the other offers at the same time.
Q2
Describe modern forms of money.
Modern forms of money include currency notes, coins, and demand deposits with banks. Demand deposits can be withdrawn when needed and used through cheques, cards, or digital transfers, making them widely accepted for payments.
Q3
How do banks use deposits to provide credit?
Banks accept deposits from people and keep only a small part as cash for withdrawals. The remaining deposits are used to give loans to borrowers. This links savers and borrowers and supports economic activity.
Q4
What are terms of credit?
Terms of credit include the interest rate, collateral, documentation, mode of repayment, and loan duration. These terms decide how costly or accessible a loan is for the borrower. Poor borrowers often face difficulty because they lack collateral or formal documents.
Q5
Compare formal and informal sources of credit.
Formal credit comes from banks and cooperatives and is supervised by the Reserve Bank of India. It usually has lower interest rates and written rules. Informal credit comes from moneylenders, traders, relatives, or employers and may charge high interest without strong regulation.