Page 78 - Understanding Economics for Class 10

money as an intermediate to buy or sell things, and no specific buyer or seller was required
to exchange products. Money acts a medium of exchange.
For example, a trader wishes to sell 20 kg wheat and wants to buy 10 kg cereals. Finding a
suitable buyer to sell the wheat in exchange for cereals would be very tough. However, the
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money will solve this problem, and the trader can sell the wheat to someone who needs it and,
in return, buy cereals from the money they get from the buyer of wheat.

3. How do banks mediate between those who have surplus money and those who need money?
Ans. Banks mediate between those who have surplus funds (the depositors) and those who are
in need of funds (the borrowers) by lending money to people who are in need. People can
open accounts in banks, and banks make use of that money to fulfil the loan requirements of
the people. A higher interest rate is charged for the borrower, and that profit is given to the
depositor as interest for offering deposits.

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
Ans. “Reserve Bank of India” and “Guaranteed by the Central Government” is written on the
top of a 10 rupee note.
It shows that currency in India is issued by the central bank of the country; the Reserve Bank
of India is the central bank of the country. The currency is issued on behalf of the Central
Government. Without this authority given by central government of India, `10 note is just a piece
of paper. As per Indian law no other organization or individual is allowed to issue currency.

5. Why do we need to expand formal sources of credit in India?
Ans. There is a need to expand formal sources of credit in India. Formal sources provide loan at a
cheaper rate, they cannot indulge in any unfair practice and hence cannot exploit borrowers,
since all the formal sources of credit like Banks and Cooperatives are supervised by RBI.
On the other hand, informal sources like moneylenders, traders provide credit at a very high
rate of interest. They tend to exploit borrowers by indulging in unfair practices and there is
no one to stop them.
Therefore, if formal sources of credit are increased in India, people will be able to take loans
and use them for the development of the country.

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
Ans. SHGs stands for Self-Helped Groups. The idea behind it is to organise the rural poor, particularly
women, into small Self-Help Groups (SHGs) and their savings are pooled (collected). A typical
SHG has 15-20 members. Depending on the ability of the people to save, saving per member
varies from `25 to `100 or more. To meet the needs, members can take small loans from
the group itself. Interest on these loans is kept at a low rate. After a year or two, it becomes
eligible for getting loan from the bank if the group is regular in savings.
The main purpose of introducing these Self Help Groups was to increase small-scale employment
opportunities for the rural people so that they could start small businesses to earn a livelihood.
Problem of lack of collateral is overcome by creating SHGs. At a very reasonable rate of
interest, borrowers can get timely loans for a variety of purposes. Hence, SHGs are referred
as the building blocks of organisation of the rural poor.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?
Ans. The reasons why banks might not be willing to lend money to certain borrowers are given
below:

Economics Class X E-69