Class 10 Money and Credit MCQs

Class 10 Money and Credit MCQs

MONEY AND CREDIT — QUESTION BANK

A. Multiple Choice Questions (MCQs)

1. Why is money preferred to direct barter?

A. Money has to be made of precious metal
B. Money eliminates the need for double coincidence of wants
C. Money can only be used in banks
D. Money cannot be exchanged for services

Answer: B

2. In a barter system, double coincidence of wants means:

A. Both people must have equal amounts of money
B. Both people must want the same commodity
C. Each person must want what the other person has
D. Both people must visit a bank

Answer: C

3. Which of the following is a modern form of money?

A. Cattle
B. Grain
C. Currency
D. Bartered goods

Answer: C

4. Why is modern currency accepted as money?

A. It is made from gold
B. It has high personal use value
C. It is authorised by the government
D. It can only be deposited in banks

Answer: C

5. In India, currency notes are issued by:

A. Commercial banks
B. RBI on behalf of the Central Government
C. Cooperative societies
D. Moneylenders

Answer: B

6. Deposits that can be withdrawn whenever required are called:

A. Fixed deposits
B. Demand deposits
C. Collateral deposits
D. Loan deposits

Answer: B

7. Which facility allows payments from a bank account without using cash?

A. Barter
B. Cheque
C. Collateral
D. Crop loan

Answer: B

8. Why are demand deposits considered money?

A. They are always kept as cash
B. They can be used for making payments
C. They are made of paper
D. They cannot be withdrawn

Answer: B

9. What do banks mainly do with the major portion of their deposits?

A. Keep all of it as cash
B. Convert it into gold
C. Provide loans
D. Destroy old currency

Answer: C

10. Banks act as intermediaries between:

A. Producers and consumers only
B. Depositors and borrowers
C. Farmers and traders only
D. Government and moneylenders

Answer: B

11. A loan is most likely to have a positive effect when:

A. The borrowed money is used productively and generates income
B. The borrower has no repayment plan
C. Interest is extremely high
D. The financed activity is highly uncertain

Answer: A

12. A borrower enters a debt trap when:

A. A loan increases income
B. Debt becomes increasingly difficult to repay
C. The borrower deposits money in a bank
D. Interest rates fall

Answer: B

13. Which of the following is NOT normally a term of credit?

A. Interest rate
B. Collateral
C. Mode of repayment
D. Colour of currency notes

Answer: D

14. Which asset can serve as collateral?

A. Land
B. A promise without any security
C. A barter agreement
D. A bank cheque itself

Answer: A

15. Which of the following belongs to the formal sector of credit?

A. Moneylender
B. Employer
C. Bank
D. Trader

Answer: C

16. Which is an informal source of credit?

A. Cooperative society
B. Commercial bank
C. Moneylender
D. Bank

Answer: C

17. Who supervises the functioning of formal sources such as banks?

A. Moneylenders
B. RBI
C. Traders
D. SHGs

Answer: B

18. Why can informal credit become expensive?

A. Informal lenders always provide free loans
B. They often charge high interest rates
C. They cannot lend money
D. They are always supervised by RBI

Answer: B

19. Cheap credit is important for development because it can help people:

A. Avoid all economic activity
B. Invest in farming, business and small industries
C. Stop repaying loans
D. Eliminate banks

Answer: B

20. The basic purpose of a Self-Help Group is to:

A. Replace all banks
B. Pool savings and provide credit to members
C. Encourage expensive borrowing
D. Issue currency

Answer: B

21. A typical SHG described in the chapter generally has:

A. 2–3 members
B. 5–10 members
C. 15–20 members
D. 100–200 members

Answer: C

22. SHGs help poor borrowers mainly by:

A. Removing the need for repayment
B. Helping them overcome the problem of collateral
C. Providing unlimited loans
D. Issuing currency

Answer: B

23. Which group is particularly emphasised in the discussion of SHGs?

A. Large industrialists
B. Rural women
C. Bank managers
D. Government officials

Answer: B

24. Which situation represents a debt trap?

A. A loan is used to expand production and is repaid from increased income
B. A borrower earns enough to repay the loan
C. A crop fails, debt grows, and the borrower takes further loans to repay earlier debt
D. A person deposits savings in a bank

Answer: C

25. Which statement best explains why poor people may depend on informal credit?

A. They always prefer high interest rates
B. They may lack collateral or required documents for bank loans
C. Banks never provide loans
D. Informal lenders are always cheaper

Answer: B

B. Fill in the Blanks

  1. Direct exchange of goods without money is called __________.
  2. The problem in barter where both parties must want what the other has is called __________.
  3. Money acts as a __________ of exchange.
  4. Modern currency consists mainly of notes and __________.
  5. In India, currency notes are issued by the __________ on behalf of the Central Government.
  6. Bank deposits that can be withdrawn on demand are called __________ deposits.
  7. A __________ is a written instruction to a bank to make a payment.
  8. Banks use a major portion of their deposits to provide __________.
  9. The difference between the interest charged on loans and the interest paid on deposits contributes to the bank’s __________.
  10. A loan is also called __________.
  11. An asset pledged as security for a loan is called __________.
  12. The conditions attached to a loan are called the __________ of credit.
  13. Banks and cooperatives are sources of __________ credit.
  14. Moneylenders and traders are generally sources of __________ credit.
  15. The __________ supervises formal sources of credit.
  16. Very high borrowing costs can increase the borrower’s __________ burden.
  17. A situation in which a borrower becomes trapped in growing debt is called a __________.
  18. SHG stands for __________.
  19. SHGs encourage members to make regular __________.
  20. SHGs can help poor borrowers overcome the problem of lack of __________.

Answers

  1. barter
  2. double coincidence of wants
  3. medium
  4. coins
  5. Reserve Bank of India (RBI)
  6. demand
  7. cheque
  8. loans
  9. income
  10. credit
  11. collateral
  12. terms
  13. formal
  14. informal
  15. RBI
  16. debt
  17. debt trap
  18. Self-Help Group
  19. savings
  20. collateral

C. True or False

Write True or False.

  1. Money makes exchange easier by removing the need for double coincidence of wants.
  2. Cattle and grain were never used as forms of money.
  3. Modern currency is accepted because it is authorised by the government.
  4. Demand deposits cannot be withdrawn whenever required.
  5. Cheques allow payments without the direct use of cash.
  6. Banks keep all deposits as cash.
  7. Banks use deposits to provide loans.
  8. Credit always benefits the borrower.
  9. Crop failure can make repayment of a loan difficult.
  10. Collateral is an asset used as security for a loan.
  11. Banks and cooperatives are formal sources of credit.
  12. Moneylenders are formal sources of credit.
  13. The RBI supervises formal credit institutions.
  14. Informal lenders may charge high interest rates.
  15. Cheap credit can support economic development.
  16. SHGs only provide loans to large businesses.
  17. SHGs encourage regular savings among members.
  18. SHGs can help people who lack collateral.
  19. Poor households generally have easier access to formal credit than rich households.
  20. Credit can have either a positive or negative effect depending on the situation.

Answers

  1. True
  2. False
  3. True
  4. False
  5. True
  6. False
  7. True
  8. False
  9. True
  10. True
  11. True
  12. False
  13. True
  14. True
  15. True
  16. False
  17. True
  18. True
  19. False
  20. True

D. Assertion–Reason Questions

Choose:

A. Both Assertion and Reason are true, and Reason correctly explains Assertion.
B. Both are true, but Reason does not correctly explain Assertion.
C. Assertion is true, but Reason is false.
D. Assertion is false, but Reason is true.

1.

Assertion: Money makes exchange easier.
Reason: Money removes the need for double coincidence of wants.

Answer: A

2.

Assertion: Demand deposits are considered a form of money.
Reason: They can be used to make payments through facilities such as cheques.

Answer: A

3.

Assertion: Banks keep all deposits as cash.
Reason: Banks need to provide loans to borrowers.

Answer: D

4.

Assertion: Credit can improve a borrower’s economic position.
Reason: Productive borrowing can help generate income.

Answer: A

5.

Assertion: Credit can sometimes create a debt trap.
Reason: A failed economic activity may make repayment difficult and increase debt.

Answer: A

6.

Assertion: Collateral is important in many formal loans.
Reason: It provides security to the lender against possible non-repayment.

Answer: A

7.

Assertion: Informal credit can be costly for borrowers.
Reason: Informal lenders often charge higher interest rates.

Answer: A

8.

Assertion: SHGs can improve poor borrowers’ access to credit.
Reason: Group-based lending can help overcome the problem of lack of collateral.

Answer: A

9.

Assertion: Cheap credit is important for economic development.
Reason: Affordable loans can support activities such as farming, business and small industries.

Answer: A

10.

Assertion: Poor households often depend more on informal credit.
Reason: Lack of collateral and documentation can make formal loans difficult to obtain.

Answer: A

E. Match the Following

Column AColumn B
1. Bartera. Asset pledged as security
2. Demand depositb. Direct exchange
3. Collateralc. Withdrawable bank deposit
4. RBId. Supervision of formal credit
5. SHGe. Group savings and credit
6. Moneylenderf. Informal source
7. Bankg. Formal source
8. Debt traph. Growing difficulty in repaying debt

Answers

1–b
2–c
3–a
4–d
5–e
6–f
7–g
8–h

F. Very Short Answer Questions

Answer in one or two sentences.

  1. What is barter?
  2. What is double coincidence of wants?
  3. Why is money called a medium of exchange?
  4. What are demand deposits?
  5. What is a cheque?
  6. Why are demand deposits considered money?
  7. What is credit?
  8. What is collateral?
  9. What are terms of credit?
  10. What is a debt trap?
  11. Name two formal sources of credit.
  12. Name any three informal sources of credit.
  13. Who supervises formal credit institutions in India?
  14. Why do banks keep only a portion of deposits as cash?
  15. Why do banks provide loans?
  16. What is an SHG?
  17. How do SHGs help poor borrowers?
  18. Why can informal credit be expensive?
  19. Why is cheap credit important for development?
  20. What is the basic difference between formal and informal credit?

G. Short Answer Questions

Answer in about 3–5 sentences.

1.

Explain how money solves the problem of double coincidence of wants.

2.

Why is modern currency accepted even though it does not have the same direct-use value as goods such as grain or cattle?

3.

Explain how demand deposits function as money.

4.

How do banks mediate between depositors and borrowers?

5.

Explain the difference between a productive and a risky use of credit with suitable examples.

6.

What happened to Swapna after her crop failed? What does her experience show about credit?

7.

Explain the main terms of credit.

8.

Why does collateral make it difficult for some poor people to obtain bank loans?

9.

Differentiate between formal and informal sources of credit.

10.

Why can dependence on moneylenders create problems for borrowers?

11.

Why is greater availability of affordable formal credit important for development?

12.

Explain the role of SHGs in improving access to credit for poor people.

13.

Why are banks more likely to lend to an organised SHG even when individual members may not have collateral?

14.

Why does the chapter argue that credit should be available to all on reasonable terms?

H. Long Answer Questions

Answer in about 6–8 sentences.

1.

Explain the role of money in a modern economy.

2.

Describe how banks accept deposits and use them for lending.

3.

“Credit can be both useful and harmful.” Explain with examples.

4.

Explain the different terms of credit and why they matter to a borrower.

5.

Compare formal and informal sources of credit in India.

6.

Why should formal sources of credit be expanded, particularly for poorer sections of society?

7.

Explain the functioning and importance of Self-Help Groups.

8.

How can expensive informal credit contribute to a debt trap?

9.

Explain the relationship between affordable credit and economic development.

10.

Why do poor households often find it difficult to obtain formal credit? What role can SHGs play in solving this problem?

I. Case-Based Questions

Case 1: A Small Business

Ravi receives an order for a large number of products. He needs money to purchase raw materials and pay workers. He borrows from a bank and successfully completes the order. His earnings allow him to repay the loan.

Questions

  1. Why did Ravi need credit?
  2. Was the credit productive in this situation? Why?
  3. From which formal source did Ravi borrow?
  4. What factor made repayment possible?

Answers

  1. He needed money for production expenses such as raw materials and wages.
  2. Yes. The borrowing helped him complete production and earn income.
  3. A bank.
  4. Successful completion of the order generated enough income for repayment.

Case 2: Crop Failure

Meena borrows money for cultivation. Her crop is badly affected by pests and she cannot earn enough to repay the loan. She borrows again to deal with the earlier debt.

Questions

  1. What risk affected Meena’s ability to repay?
  2. What may happen if her debt continues increasing?
  3. What concept does this situation illustrate?
  4. Why does the same loan that was expected to help her become harmful?

Answers

  1. Crop failure reduced her expected income.
  2. She may fall into a debt trap.
  3. Debt trap.
  4. The activity financed by the loan failed to generate sufficient income.

Case 3: Choosing a Source of Credit

A farmer needs a crop loan. A bank offers a comparatively lower interest rate but asks for documents and collateral. A local moneylender offers money quickly without collateral but charges a very high interest rate.

Questions

  1. Which lender belongs to the formal sector?
  2. Which lender belongs to the informal sector?
  3. What makes the bank loan difficult for the farmer?
  4. What makes the moneylender’s loan risky?
  5. Which type of credit is generally preferable when it is accessible on reasonable terms? Explain.

Answers

  1. The bank.
  2. The moneylender.
  3. Documentation and collateral requirements.
  4. The high interest rate can make repayment expensive.
  5. Formal credit, because it is generally more regulated and can be cheaper.

Case 4: Self-Help Group

Twenty women in a village form a group. Each member saves a small amount regularly. Members can borrow from the group when needed. After maintaining regular savings, the group becomes eligible for a bank loan.

Questions

  1. What type of organisation is this?
  2. What is the importance of regular savings?
  3. How can the group help members who lack collateral?
  4. Why may banks be willing to lend to the group?
  5. Mention one broader benefit of SHGs besides access to credit.

Answers

  1. A Self-Help Group (SHG).
  2. Savings create a common pool of funds and demonstrate regular financial participation.
  3. Group-based lending can reduce the individual collateral barrier.
  4. The group shares responsibility for repayment and manages its lending collectively.
  5. SHGs can provide a platform to discuss and address social issues.

J. Competency-Based Questions

1.

A person says, “I can exchange my shoes for wheat only if I find someone who wants shoes and has wheat.”
Which economic problem is being described? Explain how money solves it.

2.

A bank receives deposits from many people but does not keep the entire amount as cash.
Why is this arrangement important for the functioning of the economy?

3.

Two people take loans of the same amount. One uses the loan to expand a profitable business, while the other uses it for an activity that fails.
Why can the consequences of credit be different for them?

4.

A poor borrower accepts a loan with a very high interest rate because no bank is willing to lend without collateral.
Identify two problems that this borrower may face.

5.

A village has many moneylenders but very limited access to banks.
How might this affect the cost and availability of credit for poor households?

6.

A group of rural women saves regularly and collectively applies for a bank loan.
Why might their chances of obtaining formal credit improve through group organisation?

K. “Give Reason” Questions

  1. Money is more convenient than barter.
  2. Demand deposits are considered a form of money.
  3. Banks do not keep all deposits as cash.
  4. Banks charge interest on loans.
  5. Collateral is demanded by many lenders.
  6. Credit can lead to a debt trap.
  7. Informal loans can be expensive.
  8. Poor households often depend on informal lenders.
  9. Formal credit should be expanded.
  10. SHGs are useful for poor borrowers.

L. Distinguish Between

1. Barter and Money

Give at least three differences.

2. Currency and Demand Deposits

Compare them as forms of modern money.

3. Formal and Informal Credit

Compare their sources, supervision and typical borrowing costs.

4. Positive Credit Outcome and Debt Trap

Compare the conditions and consequences.

5. Bank Loan and Moneylender Loan

Compare accessibility, interest and requirements.

6. Individual Borrowing and SHG-Based Borrowing

Compare the role of collateral, group responsibility and access to formal credit.

M. Higher-Order Thinking Questions

1.

If everyone suddenly demanded all their bank deposits in cash at the same time, what problem could banks face? Explain.

2.

Why might a poor borrower prefer an informal lender even when the interest rate is high?

3.

“Access to credit is not enough; the terms of credit also matter.” Explain.

4.

Why can cheap credit contribute to development while expensive credit can discourage productive activities?

5.

Why is collateral both useful to lenders and a barrier for some borrowers?

6.

Why might a farmer with uncertain harvest income face greater difficulty with loan repayment than a borrower with a stable income?

7.

Why should the formal credit system make greater efforts to reach poorer households?

8.

How does an SHG create financial strength through collective action?

N. Data/Graph-Based Questions

1.

According to the chapter’s rural-credit data, commercial banks accounted for the largest individual share among the listed sources of rural credit.

Questions:
a. Which sector does a commercial bank belong to?
b. Who supervises formal banking institutions?
c. Why is the expansion of formal credit important?

2.

The chapter states that poor urban households obtained a much larger share of their loans from informal sources than rich urban households.

Questions:
a. What does this difference suggest about access to formal credit?
b. Why might poorer households face greater difficulty obtaining bank loans?
c. How could SHGs help address this problem?

O. One-Word / One-Term Questions

  1. Direct exchange of goods — __________
  2. Problem of matching wants in barter — __________
  3. Intermediate used in exchange — __________
  4. Withdrawable bank deposits — __________
  5. Written bank payment instruction — __________
  6. Security offered against a loan — __________
  7. Money borrowed from a lender — __________
  8. Conditions attached to a loan — __________
  9. Institution supervising formal banking — __________
  10. Group-based savings and credit organisation — __________
  11. Situation of continuously increasing repayment difficulty — __________
  12. A formal rural credit institution other than a bank — __________

Answers

  1. Barter
  2. Double coincidence of wants
  3. Money
  4. Demand deposits
  5. Cheque
  6. Collateral
  7. Credit/loan
  8. Terms of credit
  9. RBI
  10. Self-Help Group
  11. Debt trap
  12. Cooperative

P. Exam-Style Mixed Challenge

1. Choose the correct option:

Which statement is most accurate?

A. Credit always improves the borrower’s position.
B. Credit always makes borrowers poorer.
C. The effect of credit depends on the purpose, risk and terms of borrowing.
D. Credit has no connection with economic development.

Answer: C

2. Complete the sequence:

Depositor → Bank → ________ → Economic activity → Repayment

A. Borrower
B. Moneylender
C. SHG only
D. RBI

Answer: A

3. Identify the incorrect pair:

A. Bank — Formal credit
B. Moneylender — Informal credit
C. Cooperative — Formal credit
D. Employer — Formal credit

Answer: D

4. A borrower wants “low interest, easy repayment and little collateral.”

These are examples of:

A. Easy terms of credit
B. Informal credit
C. Barter
D. Demand deposits

Answer: A

5. Which sequence best explains a possible debt trap?

A. Loan → Successful production → Higher income → Repayment
B. Loan → Crop failure → Inability to repay → Further borrowing → Growing debt
C. Deposit → Interest → Withdrawal
D. Savings → SHG → Affordable loan → Income

Answer: B

Q. Most Important 15 Questions for Final Revision

If you have very little time, prepare these first:

  1. Explain double coincidence of wants and how money solves it.
  2. Why is money called a medium of exchange?
  3. Explain the role of demand deposits as money.
  4. How do banks mediate between depositors and borrowers?
  5. What is credit? Explain its positive and negative effects.
  6. What is a debt trap? Explain with an example.
  7. What are the main terms of credit?
  8. Why is collateral important?
  9. Differentiate between formal and informal sources of credit.
  10. Why can informal credit be expensive?
  11. Why should formal credit be expanded?
  12. Why do poor households often depend on informal credit?
  13. Explain the role of RBI in formal credit.
  14. What are Self-Help Groups and how do they help the poor?
  15. Explain why affordable credit is important for economic development.