Page 69 - Understanding Economics for Class 10

2. Supposing Salim continues to get orders from traders. What would be his position after 6
years?
Ans. If Salim continues to get orders from traders and he is able to complete it on time then he
can make good profits from the sale of shoes. He can use these profits for the purpose of
Goyal Brothers Prakashan
reinvestment in his future business. In the next some years, he can become independent in
financing his own business and might not require loan from any of the sources of credit.

3. What are the reasons that make Swapna’s situation so risky? Discuss factors – pesticides;
role of moneylenders; climate.
Ans. To meet the expenses of cultivation, Swapna took a loan from the moneylender and she
had hopes that she would be able to repay the loan by producing good harvest. Despite
of spraying expensive pesticides, the crop failed because the crops were hit by pests in
the midway of the season.
The moneylender is an unkind man who charges a very high interest rate from Swapna.
Because of which she was unable to repay the loan, her debt grows over the year into a
large amount. She took a fresh loan next year but crop turned out to be normal she was
unable to repay the loan and sold a part of her land. She was caught in a debt trap.
Climate also played a major role in worsening her situation. Had the weather favoured
her, she would have good harvest and had a not fallen in debt trap.

terMs of credit

 A specified interest rate on the amount borrowed along with the principal amount has to
be paid by the borrower to the moneylender. In addition, Lenders may ask for collateral
(security) against loans.
 Collateral is an asset that the borrower owns (such as land, building, vehicle, livestocks,
deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. It
gives safety to the lender in case borrower fails in making payment/repaying loan.
 In case borrower is unable to repay the loan, lender has the right to sell the asset which
is given as a collateral by the borrower to get his money back.
 Some common examples of collateral used for borrowing are property such as land titles,
deposits with banks, livestock, etc.

example of a house Loan

For purchasing a house, Megha has taken a loan of `5 lakhs from the bank. The annual rate
of interest charged by the bank on loan is 12% and it is to be repaid in 10 years in monthly
instalments. Bank has asked Megha to submit documents showing her employment records and
salary before giving her loan. As a collateral, Bank has retained the papers of the new house
which will be returned to Megha after repaying the entire amount with interest.
1. Fill the following details of Megha’s housing loan.

Loan amount (in Rupees)
Duration of loan
Documents required

Interest rate

E-60 Economics Class X