SEBA Class 10 Social Economics Chapter 1 Money and Banking

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SEBA Class 10 Social Economics Chapter 1 Money and Banking

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Money and Banking

POLITICAL AND ECONOMICS

Very Short Answer Type Questions:

1. What is barter?

Ans: The term ‘barter’ refers to a system of trade in which commodities are directly exchanged against commodities.

2. What is money?

Ans: In the words of Geoffrey Crowther, “Anything that is generally acceptable as a medium of exchange is money.”

3. Mention one important function of money.

Ans: An important function of money is that it serves as a medium of exchange to facilitate transactions.

4. Give an example of non-legal tender money.

Ans: One example of non-legal tender money is cheque money.

5. What is representative paper money? paper money?

Ans: Representative paper money is symbolic money which is capable of conversion into gold or silver of equivalent value.

6. What is a bank?

Ans: A bank is a financial institution that accepts deposits and grants loans.

7. In which year was the Reserve Bank of India set up?

Ans: Reserve Bank of India was set up in 1935.

8. What is current deposit.

Ans: A current deposit refers to a savings account wherein the saver or depositor can withdraw money at any time.

Short Answer Type Questions

1. How does the lack of double coincidence of wants create problems in the barter system?

Ans: It means both parties must want what the other offers. If A wants sugarcane and B wants rice, exchange happens. But if B wants fish and A doesn’t have it, exchange fails. This makes barter difficult and inefficient.

2. What is meant by store of value?

Ans: The store of value function of money refers to its ability to retain value over time, allowing individuals to save and retrieve it for future use. This function is possible because money is durable and does not lose its value easily over time.

3. Which characteristic of money is the most important one and why?

Ans: The most important characteristic of money is its general acceptability. It serves as a medium of exchange because it is readily accepted by the general public without any hesitation. People trust that money can be exchanged for goods and services at any time and place.

4. What is liquidity of money?

Ans: Liquidity of money refers to the ease with which money can be immediately used to purchase goods and services. Money is considered the most liquid asset because it can be readily exchanged without any loss in value. Apart from money, other assets like gold, silver, and land are also considered liquid, though they are relatively less liquid compared to money.

5. Money is the common unit of measurement of the value of goods and services.’ Explain.

Ans: We know that every economic good carries a price. Money, as a standard of value, allows us to express the worth of goods and services in terms of price. Since it serves as a universal unit of measurement, determining and comparing the value of various goods and services becomes quite simple. Therefore, it is rightly said that “Money acts as the standard unit for measuring the value of goods and services.”

6. What is the difference between limited and unlimited legal tender?

Ans: 

Basis of difference	Limited legal tender	Unlimited legal tender
Meaning	It refers to money that is acceptable only up to a certain limit in payment.	It refers to money that can be used in unlimited amounts for settling any transaction.
Example	Coins (e.g., 1, ₹2, ₹5, ₹10) accepted only up to a fixed amount (e.g., ₹1,000).	Currency notes (e.g., ₹100, ₹500, ₹2000) accepted in any amount for transactions.
Legal limit	The law restricts the maximum amount that can be paid using limited legal tender.	There is no legal limit on the amount that can be paid using unlimited legal tender.
Usages	Used for small and routine transactions	Used for both small and large transactions.
Acceptance	Cannot be forced upon a person beyond the prescribed limit.	Must be accepted by all persons and institute for any amount.

7. What are the functions of the Regional Rural Banks?

Ans: Regional Rural Banks perform two main functions: 

(i) to provide loans at low rate of interest to the villagers and liberate them from the clutches of the private money lenders who charge extremely high rate of interest.

(ii) to mobilise rural savings and invest these in various productive activities. In 2014, the number of RRBs in India was 57.

8. How are the Non Banking Financial Institutions different from the banks?

Ans: Differences between Banks and Non-Banking Financial Institutions (NBFIs):

Aspects	Bank’s	Non-Banking Financial Institutions
Withdrawal facilities	Depositors can withdraw money using cheques.	No cheque-based withdrawal facility.
Deposit Insurance	Covered under the Deposit Insurance Scheme (by DICGC), which protects depositor money up to a limit.	Not covered under any deposit insurance scheme.
Regution	Fully regulated by the Reserve Bank of India (RBI).	Required to register with RBI, but many operate without registration and may be fraudulent.
Trust and security	Generally more secure and trustworthy due to tight regulation and insurance.	Higher risk if not registered; some may disappear with depositors’ money.

Long Answer Type Questions

1. Explain four demerits of the barter system.

Ans: The four demerits of the barter System are:

(a) Lack of Double Coincidence of Wants – Barter requires both parties to want what the other has. If that doesn’t happen, exchange is not possible.

(b) No Common Unit of Account – In barter, the value of goods must be expressed in terms of other goods, which is confusing. Money solves this by acting as a common measure of value.

(c) Indivisibility of Goods – Some goods can’t be divided for small exchanges (e.g., an elephant for bread). Money is divisible and can be used for any amount.

(d) No Store of Value – Many goods in barter are perishable and can’t be stored for long. Money is durable and can be saved for future use.

2. Explain any four characteristics of money.

Ans: Money has a number of characteristics such are:

(a) Money must have general acceptability. It must be acceptable as a medium of exchange, This is the most important characteristic of money.

(b) Money must have cognizability. There should be absolutely no difficulty in identifying money. If money is not easily recognizable, transactions will naturally be problematic.

(c) Money must have durability. Fish, egg, milk etc. can not be money. Because these are perishable commodities. If money is perishable, money cannot be stored up. In that case, there will be no store of value. Saving will be impossible.

(d) Money must have homogeneity, meaning all units of the same value should be identical. For example, all ten rupee notes should look the same—if one is too big or too small, people might accept or reject them unfairly. Uniformity prevents confusion and ensures smooth transactions.

3. Explain four major functions of money.

Ans: Money has four main functions:

(a)  Medium of Exchange: In a barter system, goods are exchanged directly. Money simplifies this by allowing goods to be sold for money, which is then used to buy other goods.

(b) Measure of Value: Money provides a common unit to measure and compare the value of goods and services, known as price.

(c) Standard of Deferred Payments: Money allows payments to be made in the future. Loans, credits, and other delayed payments are all valued in terms of money.

(d) Store of Value: Money can be saved and used in the future because it is durable and retains value. However, if its value falls quickly, people may turn to gold, silver, or land instead.

4. Is cheque money? Give reasons for your answer.

Ans: No, a cheque is not considered money. Although it facilitates transactions, it does not meet all the essential characteristics of money. Here are the reasons:

(a)  Lacks General Acceptability: A cheque is not universally accepted as a medium of exchange like currency. Not everyone agrees to receive payments through cheques.

(b) Not a Direct Payment: A cheque is simply an instruction to the bank to pay. It is a promise, not the actual transfer of money.

(c)  Limited Liquidity: A cheque cannot be used for immediate purchases. It needs to be deposited or encashed, which takes time.

(d) Not Divisible: Unlike coins or notes, a cheque cannot be divided into smaller units to make smaller payments.

(e)  Risk of Dishonour: Cheques can bounce due to insufficient funds, making them unreliable and risky in transactions.

Due to these limitations, a cheque cannot be classified as money, though it serves as a tool for transferring money from one party to another.

5. Mention four problems associated with money.

Ans: The progress and economic development of any country largely depend on the availability and proper use of money. All economic activities such as production, distribution, and consumption of goods and services are closely linked with money. However, several problems are associated with money. These include:

(a) Loss of Value: One major drawback of money is that it can lead to economic instability due to inflation or deflation, which erodes the value of money over time.

(b) Concentration of Wealth: Money often results in the concentration of wealth and economic power in the hands of a few individuals or groups, leading to inequality.

(c)  Rise in Social Evils: The misuse of money contributes to various social evils such as bribery, corruption, political manipulation, financial fraud, and bank scams.

(d)  Generation of Black Money: Economic crimes give rise to black money, which increases the volume of unaccounted wealth in the market, thereby contributing to inflation and harming the economy.

6. Explain any four functions of the Central Bank.

Ans: The Central Bank is the apex institution for all banks in a country. All banks follow its guidelines. The world’s oldest Central Bank is Sweden’s Riksbank (1656). In India, the Reserve Bank of India (RBI) serves as the Central Bank, established in 1935. Key functions include:

(a) Issuing of Currency: The Central Bank has the sole authority to issue currency notes in the country. This is known as the monopoly right of currency issuance. No other bank or institution is allowed to print currency. This ensures uniformity and control over the money supply in the economy.

(b) Controlling Credit: The Central Bank controls the volume of credit in the economy. Since credit money forms a large part of total money supply, it uses tools like repo rate, bank rate, CRR, and SLR to regulate the lending capacity of commercial banks. This helps maintain economic stability and control inflation.

(c) Bankers’ Bank: The Central Bank acts as a banker to all other banks. It supervises and inspects their accounts and operations. In times of financial difficulty, it provides emergency support to commercial banks, acting as a “lender of last resort.”

(d) Financier, Advisor, and Agent to the Government: The Central Bank helps the government by financing budget deficits, especially in the central budget. It also advises the government on economic matters like income policy, taxation, and trade. As an agent, it manages the government’s banking transactions and maintains its accounts.

7. Explain any two major functions of the commercial banks.

Ans: Commercial banks are financial institutions that provide a range of services to the public, either directly or indirectly, in areas such as savings, credit, and trade, under the supervision of the Central Bank. Over time, their areas of operation have expanded significantly. The key functions of commercial banks are described below:

(i) Mobilisation of Savings: Commercial banks encourage people to save money by offering various types of deposit accounts:

Current Deposit: This type of deposit allows the account holder to withdraw money at any time without any restrictions.

Fixed or Time Deposit: These deposits are made for a specific period. Money cannot be withdrawn before maturity without prior notice to the bank.

Savings Deposit: A part of the deposit can be withdrawn as needed, while the remaining balance may require the bank’s permission for withdrawal.

In India, the reach of banking services has grown over the years. As per Census 2001, only 36% of the population had bank accounts. This figure rose to 59% in 2011. By August 2014, around 210.5 million Indians had opened bank accounts — and the number continues to rise.

(ii) Providing Loans: Commercial banks provide loans to various sections of society including farmers, artisans, industrialists, vendors, and rickshaw pullers.

Proper and productive use of these loans helps improve the economic condition of borrowers and contributes to overall economic development.

However, commercial banks usually avoid providing long-term loans. Long-term lending ties up funds for extended periods, which may affect the bank’s ability to return depositors’ money on demand. This could erode public trust and potentially lead to a banking crisis or bankruptcy.

8. Briefly explain any two functions of each of the following:

(i) IDBI.

Ans: The Industrial Development Bank of India (IDBI) was established in 1964 to promote industrial growth in the country. It provides both direct and indirect financial assistance to industries. Indirectly, it supports institutions like State Financial Corporations and commercial banks, which then offer loans to industries. IDBI also gives loans at concessional rates to promote industries in backward regions. Additionally, it promotes entrepreneurship through various training programs.

(ii) RRBs.

Ans: Regional Rural Banks (RRBs) were established in 1975 with the aim of strengthening the rural credit system in India. Initially, five RRBs were set up to cater to the needs of the rural population, particularly the small and marginal farmers, agricultural laborers, artisans, and small entrepreneurs. The primary objective of these banks is twofold: first, to provide loans at low rates of interest to the rural population and free them from the exploitation of private moneylenders who often charge exorbitant interest rates; and second, to mobilize rural savings and channel these funds into productive and development-oriented activities in the countryside.

RRBs are jointly owned by the Central Government, the concerned State Government, and a sponsoring commercial bank. Their operational area is generally limited to a few districts in a state, which allows them to focus better on the specific needs of the local people. Over time, the number of RRBs increased significantly to expand financial inclusion and support rural development. By 2014, the number of RRBs in India had reached 57, playing a vital role in uplifting the rural economy through credit support and financial services.

(iii) NABARD.

Ans: Established in 1982, NABARD took over all responsibilities related to rural credit that were previously handled by the Reserve Bank of India. It serves as the apex financial institution for rural development. The key functions of NABARD include:

(i) Acting as the top financial body for all institutions involved in rural investment and production activities;

(ii) Facilitating and regulating the process of loan disbursement, monitoring the implementation and progress of various rural development schemes, and conducting training programs for beneficiaries;

(iii) Coordinating rural development initiatives launched by the central and state governments, the Reserve Bank of India, and other relevant organizations.

(iv) SIDBI.

Ans: The Small Industries Development Bank of India (SIDBI) was established following the passage of the Bill in 1989 and commenced operations in 1990. Its headquarters is located in Lucknow. 

The primary objectives and functions of SIDBI include:

(a) Promoting modernization and the adoption of advanced technology in small-scale industries.

(b) Facilitating the development of markets for products manufactured by small industries.

(c) Generating employment opportunities in semi-urban areas, thereby helping to curb migration to urban centers.

(d) Providing financial support to State Financial Corporations, State Industrial Development Corporations, commercial banks, cooperative banks, and regional rural banks, enabling them to extend credit facilities to small-scale industries.

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SEBA Class 10 Social Science Solutions [New Edition Updated]

S.L No.	CONTENTS
	PART – I: HISTORY
Chapter 1	Partition Of Bengal And Swadeshi Movement
Chapter 2	Rise Of Gandhi And The Freedom Movement Of India
Chapter 3	Anti-British Rising And Peasant Revolts In Assam
Chapter 4	Indian British Rising and Peasant Revolts in Assam
Chapter 5	Cultural Heritage Of India And North East Region
	PART – II: GEOGRAPHY
Chapter 6	Ecological Geography: Subject Matter and Resource
Chapter 7	Environment And Environmental Problems
Chapter 8	Geography Of The World
Chapter 9	Geography Of Assam
	PART – III: POLITICAL SCIENCE
Chapter 10	Indian Democracy
Chapter 11	International Organization
	PART – III: ECONOMICS
Chapter 12	Money And Banking
Chapter 13	Economic Development

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