Notes of Money and Credit Class 10

Notes of Money and Credit Class 10

Here are the Detailed Notes of Money and Credit Class 10 (Class 10 economics chapter 3 notes). “Money and Credit” is a vital chapter in the CBSE Class 10 Economics syllabus, which teaches students about the role of money and credit in the economy. Here we have covered notes of money and credit class 10 in two ways. First we have written down the notes for quick revision in points format, then we have given detailed notes below.

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Notes of Money and Credit Class 10 in points

  1. Definition of money: Money is a medium of exchange that facilitates the transfer of goods and services. It is also used as a store of value and a unit of account. The most commonly used forms of money in the modern economy are currency, bank deposits, and electronic payments.
  2. Definition of credit: Credit is an arrangement in which a lender provides funds or assets to a borrower, with the expectation that the borrower will repay the amount, usually with interest. Credit is essential for economic development as it allows individuals and businesses to invest in their future.
  3. Reserve Bank of India: The Reserve Bank of India (RBI) is the central bank of the country, responsible for controlling the supply of money and credit. The RBI regulates the banking system, controls inflation, and manages the exchange rate.
  4. Formal sector of credit: The formal sector of credit includes banks and cooperatives. These institutions lend money to borrowers at an interest rate that is regulated by the RBI. Formal sector credit is available to all sections of society, and borrowers are required to provide collateral to avail of loans.
  5. Informal sector of credit: The informal sector of credit includes moneylenders and traders. These lenders provide credit without any formal documentation and at a much higher interest rate than formal sector lenders. The informal sector of credit is typically used by people who do not have access to formal sector credit or are not eligible for loans from formal sector lenders.
  6. Collateral: Collateral is an essential concept in the credit market. Collateral refers to assets that a borrower pledges to a lender as security for a loan. The lender has the right to seize the collateral if the borrower defaults on the loan.
  7. Interest rate: The interest rate is the cost of borrowing money, and it is typically expressed as a percentage of the loan amount. The interest rate is determined by the lender and is influenced by various factors, including inflation, credit risk, and market conditions.
  8. Difference between interest rate charged by lender and rate at which they borrow: The difference between the interest rate charged by the lender and the rate at which they borrow is known as the spread. The spread is the profit earned by the lender and covers their operating costs and the risk of default by borrowers.
  9. Credit and its importance: Credit is essential for economic growth as it allows businesses and individuals to invest in their future. Without credit, the economy would not be able to grow, and people would not be able to access the resources they need to improve their lives. Credit also provides a way for people to manage financial emergencies and unexpected expenses.
  10. Role of RBI in credit market: The RBI plays a crucial role in the credit market by regulating the banking system and controlling the supply of money and credit. The RBI also sets interest rates, which influence the cost of borrowing and the availability of credit. The RBI’s policies are designed to promote economic growth while maintaining price stability and financial stability.

Money and Credit Notes Class 10 in detail

Money as a Medium of Exchange

Money is an essential part of our daily lives as it serves as a medium of exchange for goods and services. It is a commonly accepted form of payment that allows us to trade with ease, without the need for bartering or trading goods directly. This is especially important in a modern economy where there are countless goods and services being exchanged. Money is a universally accepted medium of exchange that makes transactions efficient and convenient. Without money, it would be difficult to conduct everyday transactions, and the economy would not function as smoothly as it does today. Therefore, money is an essential component of the modern economy and serves as a critical medium of exchange.

Modern form of Money

Modern forms of money have evolved significantly from the traditional physical currency like coins and paper notes. Today, electronic forms of money have become increasingly popular, and they offer more convenience and security to users. These modern forms of money include debit cards, credit cards, online payment platforms like PayPal and Venmo, digital wallets, and even cryptocurrencies like Bitcoin.

Debit cards are linked directly to a bank account and allow people to make payments electronically. Credit cards work in a similar way, but they allow people to borrow money from a bank or financial institution to make purchases. Online payment platforms offer users an easy and convenient way to transfer money to others, pay bills, and make purchases online. Digital wallets are software applications that store payment information and allow users to pay for goods and services via their mobile devices. Lastly, cryptocurrencies like Bitcoin are digital currencies that operate on a decentralized blockchain system, allowing users to make secure, peer-to-peer transactions without the need for a central authority.

Overall, modern forms of money provide greater convenience and security than traditional physical currency, and they have made conducting financial transactions much easier in today’s digital world.

Loan Activities of Banks

banks are financial intermediaries that channel savings from depositors to borrowers who need funds to finance their various economic activities. Banks provide loans to individuals, businesses, and governments, and this is one of the essential functions of the banking system.

The Reserve Bank of India (RBI) regulates the lending activities of banks in India, and it sets the benchmark interest rates. Banks offer various types of loans such as personal loans, home loans, education loans, business loans, and agricultural loans. Banks charge interest on loans, and this interest rate varies depending on the type of loan, the borrower’s creditworthiness, and the prevailing market conditions.

The loan activities of banks are essential to the economy because they help to allocate financial resources efficiently. Banks provide credit to individuals and businesses who may not have sufficient savings to fund their activities. Loans from banks help these borrowers to invest in productive activities, create employment opportunities, and generate income. Therefore, the loan activities of banks play a significant role in promoting economic growth and development.

However, the loan activities of banks also carry some risks. If borrowers are unable to repay their loans, banks may incur losses, which can adversely impact their financial health. Therefore, banks need to undertake a thorough credit appraisal process before granting loans to ensure that borrowers have the ability and willingness to repay their debts.

Two Different Credit Situations

Two different credit situations are:

  1. Formal Credit: Formal credit refers to the credit provided by formal financial institutions such as banks, cooperatives, and other regulated financial institutions. Formal credit is regulated by the Reserve Bank of India (RBI), and these institutions follow specific guidelines and rules. Formal credit is generally provided to borrowers who have collateral or other security, good credit history, and stable income. Formal credit is an essential tool for promoting economic growth and development, as it helps to mobilize savings and allocate financial resources efficiently.
  2. Informal Credit: Informal credit refers to the credit provided by non-institutional sources such as moneylenders, pawnbrokers, and other unregulated lenders. Informal credit is not regulated by the RBI and is generally not governed by specific rules or guidelines. Borrowers who cannot access formal credit often resort to informal credit to meet their financial needs. However, informal credit comes with high interest rates and other charges, which can be a burden for borrowers. Informal credit also carries the risk of exploitation, as lenders may resort to unethical practices to recover their funds.

Terms of Credit (Class 10 economics chapter 3 notes)

The terms of credit are the conditions under which credit is provided to borrowers. These terms determine the cost of credit and the obligations of the borrower. Some important terms of credit are:

  1. Interest rate: The interest rate is the cost of borrowing money and is usually expressed as a percentage of the amount borrowed. The interest rate can be fixed or variable, and it varies depending on the type of credit, the borrower’s creditworthiness, and other factors.
  2. Collateral: Collateral is an asset or property that a borrower pledges as security for a loan. The collateral provides the lender with a means of recovering their funds if the borrower defaults on the loan.
  3. Creditworthiness: Creditworthiness refers to a borrower’s ability to repay the loan. Lenders assess creditworthiness by looking at factors such as the borrower’s income, credit history, and other debts.
  4. Repayment period: The repayment period is the length of time the borrower has to repay the loan. The repayment period varies depending on the type of credit and the amount borrowed.
  5. Processing fees: Processing fees are charges that lenders levy to cover the cost of processing the loan application. These fees can be a fixed amount or a percentage of the loan amount.
  6. Prepayment penalty: A prepayment penalty is a fee that lenders charge if the borrower repays the loan before the end of the repayment period. The penalty is intended to compensate the lender for the interest that they would have earned if the borrower had repaid the loan on schedule.

Formal Sector Credit in India

The formal sector credit in India is the credit provided by the formal financial institutions such as commercial banks, regional rural banks, and cooperatives. Some important points related to formal sector credit in India are:

  • The Reserve Bank of India (RBI) regulates the formal sector credit.
  • The formal sector credit plays an important role in the economic development of the country by providing credit to different sectors of the economy such as agriculture, industry, and services.
  • The formal sector credit is available at a lower rate of interest as compared to the informal sector credit.
  • The formal sector credit has various sources of finance such as deposits, borrowings from the RBI, and capital market borrowings.
  • The formal sector credit provides various types of credit such as cash credit, overdraft, and term loans to meet the credit needs of different sectors of the economy.
  • The formal sector credit has certain limitations such as limited outreach to the rural areas and small borrowers, rigid collateral requirements, and lengthy loan processing time.

Thus, formal sector credit in India is an important source of credit for various sectors of the economy and is regulated by the RBI. However, it also has certain limitations that need to be addressed to make credit more accessible and affordable to all sections of the society.

Self Help Groups for the Poor

Self-Help Groups (SHGs) are informal associations of poor people, mainly women, who come together to address their common problems of poverty and lack of access to formal credit. Some important points related to SHGs are:

  • SHGs are formed by poor people, mainly women, with the help of Non-Governmental Organizations (NGOs), banks and government agencies.
  • The main objective of forming an SHG is to provide a platform for poor people to pool their savings and lend money to their members at reasonable rates of interest.
  • SHGs provide an opportunity for poor people to improve their socio-economic status by starting income-generating activities and creating self-employment opportunities.
  • SHGs also provide non-financial services such as training and awareness programs to their members.
  • SHGs are linked with formal financial institutions such as banks, which provide them with credit for lending to their members.
  • The credit provided by SHGs is collateral-free, which makes it accessible to poor people who do not have any assets to pledge as collateral.
  • SHGs have been successful in providing credit to poor people, reducing their dependence on informal sources of credit and improving their standard of living.

Thus, SHGs are an important mechanism for providing credit to poor people and empowering them to improve their socio-economic status. They also provide non-financial services and are linked with formal financial institutions, which help in making credit accessible and affordable to poor people.

These were the detailed Notes of Money and Credit Class 10. You can read more about this chapter here.


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