Money and Credit Class 10 MCQ Questions With Answers
Question 1.
Which one of the following options describe ‘Collateral’?
(A) Double coincidence of wants
(B) Certain products for barter system
(C) Trade in barter system
(D) Asset as guarantee for loan
Answer:
(D) Asset as guarantee for loan
Explanation:
The collateral acts as a form of protection for the lender. That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.
Question 2.
Which one of the following is not a limitation of the barter system?
(A) lack of double coincidence of wants
(B) certain products can’t be divided
(C) most often double coincidence of wants is not available
(D) None of the above
Answer:
(D) None of the above
Explanation:
Barter system had many limitations like lack of double coincidence of wants, lack of a common unit of value, difficulty of future payments or contractual payments and difficulty of storage of value and transfer of value.
Question 3.
Which one of the following was not a traditional form of money?
(A) Grains
(B) Paper notes
(C) Cattle
(D) Gold coins
Answer:
(B) Paper notes
Explanation:
Paper notes were introduced very late. Sheep, camels, and other livestock, were the first and oldest form of money.
Question 4.
Who issues currency notes in India?
(A) Reserve Bank of India
(B) State Bank of India
(C) Ministry of Finance
(D) Government of India
Answer:
(A) Reserve Bank of India
Explanation:
The Reserve Bank of India is Central bank. It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
Question 5.
A cheque like currency notes act as
(A) cash
(B) a store of value
(C) a medium of exchange
(D) a demand deposit
Answer:
(C) a medium of exchange
Explanation:
Money is accepted as a medium of exchange because: The currency is authorised by the government of the country. The Reserve Bank of India issues currency notes on behalf of the Central Government.
Question 6.
A deposit with a bank that can be withdrawn whenever the depositor likes to do so, is termed as-
(A) a demand deposit
(B) a time deposit
(C) a fixed deposit
(D) a legitimate deposi
Answer:
(A) a demand deposit
Question 7.
Which of the following does not constitute a part of informal credit in India?
(A) Commercial Bank
(B) Moneylenders
(C) Friends and relatives
(D) Zamindars
Answer:
(A) Commercial Bank
Explanation:
Commercial banks are a part of formal credit as the bank’s funds come from money deposited by the bank customers in saving accounts, checking accounts, money market accounts.
Question 8.
The functioning of the formal source of credit are supervised by
(A) Government of India
(B) Reserve Bank of India
(C) Ministry of Finance
(D) None of the above
Answer:
(B) Reserve Bank of India
Explanation:
The RBI supervises the functioning of formal sources of credit in India. The RBI monitors that the banks actually maintain the required cash balance out of the deposits they receive.
Question 9.
Banks do not give loans to
(A) small farmer
(B) marginal farmers
(C) industries
(D) people without proper collateral and documents
Answer:
(D) people without proper collateral and documents
Explanation:
Banks require it to know financial condition of borrower and make sure he/ she can pay loan on time .
Question 10.
The number of members in a typical SHG varies between
(A) 5 and 10
(B) 15 and 20
(C) 15 and 25
(D) 20 and 30
Answer:
(B) 15 and 20
Explanation:
A Self-help group (SHG) is a financial intermediary committee usually composed of 15 to 20 local women or men.
Question 11.
| Column A | Column B |
| (i) Barter system | (A) Supervises the functioning of banks |
| (ii) Debt-trap | (B) Commodity for commodity ex-change system |
| (iii) Formal sector loans | (C) Pushes the bor-rower into a situation from which recovery is very painful |
| (iv) Reserve Bank of India | (D) Loans from banks and coop-eratives |
(A) (i)-(C), (ii)-(D), (iii)-(B), (iv)-(A)
(B) (i)-(A), (ii)-(B), (iii)-(C), (iv)-(D)
(C) (i)-(B), (ii)-(A), (iii)-(D), (iv)-(C)
(D) (i)-(D), (ii)-(C), (iii)-(A), (iv)-(B)
Answer:
(A) (i)-(C), (ii)-(D), (iii)-(B), (iv)-(A)
Question 12.
| Column A | Column B |
| (i) Financial Formal Institutions | (A) Payments which are to be made in future |
| (ii) Financial Informal Institutions | (B) The actual amount of investment |
| (iii) Actual Investment | (C) Commercial banks, coopera-tives, Rural Banks |
| (iv) Deferred Payments | (D) Moneylenders, landlords, employers, rela-tives, friends etc |
(A) (i)-(c), (ii) (D),-(iii) (B), (iv)-(A)
(B) (i)-(B), (ii)-(B), (iii)-(C), (iv)-(D)
(C) (i)-(B), (ii)-(A), (iii)-(D), (iv)-(C)
(D) (i)-(D), (ii)-(C), (iii)-(A),(iv)-(B)
Answer:
(A) (i)-(c), (ii) (D),-(iii) (B), (iv)-(A)
Question 13.
Arrange the following in the correct sequence:
(i) Online payment, Debit card, Credit cards
(ii) Precious metal coins (gold, silver, copper)
(iii) Grain and Cattle
(iv) Modern Currency-Paper notes and coins
Options:
(A) (iv) – (i) – (ii) – (iii)
(B) (iii) – (ii) – (i) – (iv)
(C) (iii) – (ii) – (iv) – (i)
(D) (ii) – (iv) – (iii) – (i)
Answer:
(C) (iii) – (ii) – (iv) – (i)
Explanation:
Initially grains and cattle were used as money. Before the introduction of coins, a variety of objects was used as money. Thereafter came the use of metallic coins. As time progressed, trade increased and a global market was created. With the global market came the need for a more convenient medium of exchange. Thus was born the modern forms of money – paper notes (currency) and coin. With the advancement of technology, online payments have become the new form of contactless payment.
Question 14.
Analyze the information given below, considering one of the following correct options: Rita has taken a loan of ₹ 7 lakhs from the bank to purchase a car. The annual interest rate on the loan is 14.5 per cent and the loan is to be repaid in 3 years in monthly instalments. The bank retained the papers of the new car as collateral, which will be returned to Rita only when she repays the entire loan with interest.
(A) Mode of re-payment
(B) Terms of credit
(C) Interest on loan
(D) Deposit criteria
Answer:
(B) Terms of credit
Explanation:
Terms of credit are the requirements need to be satisfied for any credit arrangements. It includes interest rate, collateral, documentation and mode of repayment. However the terms of credit vary depending upon the nature of lender, borrower and loan.
Question 15.
Analyze the information given below, considering one of the following correct options: Mohan is an agricultural labourer. There are several months in a year when he has no work and needs credit to meet his daily expenses. He depends upon his employer, the landowner for credit who charges an interest rate of 5 per cent per month. Mohan repays the money by working physically for the landowner on his farmland. Over the years his debt will
(A) Increase – because of increasing interest and non-payment of monthly amount
(B) Remain constant – as he is working for the employer but is repaying less
(C) Reduce – as amount equivalent to his salary is being counted as monthly repayment
(D) Be totally repaid – as he is repaying the debt in the form of physical labour
Answer:
(A) Increase – because of increasing interest and non-payment of monthly amount
Explanation:
Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher.
Question 16.
Analyze the information given below, considering one of the following correct options:
Mahesh is a small farmer. He has taken a loan of ₹2 lakhs from the money leader to meet the expenses of cultivation. The annual interest rate on the loan is very high, so he is unable to repay the loan and he is caught in a debt. He has to sell a part of the land to pay off the debt.
(A) Terms of credit
(B) Interest on loan
(C) Debt-trap
(D) Mode of repayment
Answer:
(C) Debt-trap
Explanation:
Debt -trap is a situation in which a poor person falls in dept i.e he/she is not able to pay the interest rate or loans .
Question 17.
Analyze the information given below, considering one of the following correct options: Ramu is a shoe manufacturer and he wants to directly exchange shoes for rice without the use of money. Now he will have to look for a rice growing farmer who not only wants to sell rice but also wants to buy the shoes in exchange.
(A) Double coincidence of wants
(B) Goods exchange with goods
(C) Goods exchange with money
(D) None of the above
Answer:
(A) Double coincidence of wants
Question 18.
Analyze the information given below, considering one of the following correct options: Megha has taken a loan of ₹ 6 lakhs from the bank to purchase a house. The annual interest rate on the loan is 14 per cent and the loan is to be repaid in 12 years in monthly installments. Megha had to submit to the bank, documents showing her employment records and salary before the bank agreed to give her the loan.
(A) Interest on loan
(B) Formal source of loan
(C) Informal source of loan
(D) None of the above
Answer:
(B) Formal source of loan
Explanation:
Formal source of loan demands the submission of collateral and all loan related documentation before processing the loan.
Question 19.
Analyze the information given below, considering one of the following correct options : A shopkeeper Sudha has to make a payment to the wholesaler and writes a cheque for a specific amount to the wholesaler. The wholesaler takes this cheque, and deposits it in his own account in the bank. The money is transferred form one bank account to another bank account in a couple of days. The transaction is completed without any payment of cash.
(A) Check payment
(B) Interest on deposits
(C) Demand deposit
(D) Money transfer
Answer:
(C) Demand deposit
Explanation:
In case of Demand Deposit deposited funds can be withdrawn at any time, without advance notice.
Question 20.
Find the incorrect option from the following:
(A) Demand deposit share the essential features of money
(B) With demand deposit payments can be made without cash
(C) Demand deposits are safe way of money transformation
(D) Demand deposit facility is like cheque
Answer:
(D) Demand deposit facility is like cheque
Explanation:
The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.
Question 21.
Find the incorrect option from the following:
(A) Banks accept deposit and also pay an amount as interest.
(B) People’s money is safe with banks.
(C) Banks provide loans only to profit-making businesses.
(D) It is easy for individuals to get credit who have savings and current account in the banks.
Answer:
(C) Banks provide loans only to profit-making businesses.
Question 22.
Find the incorrect option from the following :
(A) Poor households still depend on informal sources of credit.
(B) RBI supervises the functioning of informal sources of loans.
(C) Banks are not present everywhere in the rural areas.
(D) RBI monitors the banks in actually maintaining cash balance.
Answer:
(B) RBI supervises the functioning of informal sources of loans.
Explanation:
The RBI monitors the banks in actually maintaining cash balance. Periodically banks have to submit information to the RBI on how much they are lending to whom at what interest rate etc.
Assertion and Raeson Based MCQs
Directions: In the following questions, A statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as.
(A) Both A and R are true and R is the correct explanation of A.
(B) Both A and R are true but R is NOT the correct explanation of A.
(C) A is correct but R is wrong.
(D) A is wrong and R is correct.
Question 1.
Assertion (A): No individual or organisation is allowed to issue currency notes in India.
Reason (R): In India, only RBI issues currency notes on behalf of the Central Government.
Answer:
(A) Both A and R are true and R is the correct explanation of A.
Question 2.
Assertion (A): Banks keeps a small proportion of their deposits as cash with themselves.
Reason (R): This is kept to meet the loan requirements of the people.
Answer:
(C) A is correct but R is wrong.
Explanation:
Banks keep only a small proportion of their deposits as cash with themselves. This is kept as a provision to pay the depositors who might come to withdraw money from the bank on any given day.
Question 3.
Assertion (A): Banks give loans not only to profit-making businesses but also to small cultivators.
Reason (R): The RBI supervises the functioning of formal sources of loans.
Answer:
(A) Both A and R are true and R is the correct explanation of A.
Explanation:
The RBI sees the the banks give loan not just to profit -‘making business and traders but also to small cultivators, small-scale industries, small borrowers, etc. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.
Question 4.
Assertion (A): Periodically, banks have to submit information to the Finance Minister on how much they are lending, to whom, at what interest rate, etc.
Reason (R): The Finance Minister monitors the banks in actually maintaining cash balance.
Answer:
(D) A is wrong and R is correct.
Explanation:
The RBI monitors that the banks actually maintain the cash balance.
Question 5.
Assertion (A): The facility of demand deposits makes it possible to settle payments without the use of cash.
Reason (R): Demand deposits are paper orders which make it possible to transfer money from one person’s account to another person’s account.
Answer:
(D) A is wrong and R is correct.
Explanation:
The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. Since demand deposits are accepted widely as a means of payment, along with currency; they constitute money in the modern economy.
Question 6.
Assertion (A): Banks charge a higher interest rate on loans than what they offer on deposits.
Reason (R): The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
Answer:
(A) Both A and R are true and R is the correct explanation of A.
Case-Based MCQs
I. Read the extract given below and answer the questions that follows:
Bartering is the act of trading one good or service for another without using a medium of exchange such as money. A bartering economy differs from a monetary economy in a variety of ways. When barter was used as an exchange medium, the needs of people were very limited. This trading method doesn’t involve money and it relies solely on exchanging goods and services for other services and goods in return. The use of money spans a very large part of our everyday life. To understand the usefulness of money, we must consider what the world would be like without money. How would people exchange goods and services? Economies without money typically engage in the barter system.
Barter is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without money, an exchange between two people would involve a double coincidence of wants, a situation in which both the parties have to agree to sell and buy each other’s commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature.
Another problem with the barter system is that it does not allow us to easily enter into future contracts for purchasing many goods and services. Money solves the problems that the barter system creates. Money serves as a medium of exchange, which means that money acts as an intermediary between the buyer and the seller. Modem forms of money include currency paper notes and coins. The other form in which people hold money is as deposits with banks.
Answer the following MCQs by choosing the most appropriate option
Question 1.
Which of the following can be considered as modern form of Money?
(A) Paper note
(B) Gold Coins
(C) Silver Coins
(D) Copper coins
Answer:
(B) Gold Coins
Explanation:
They are accepted as a modern form of money because of government authorization.
Question 2.
Which of the following has an essential feature of double coincidence?
(A) Money system
(B) Barter system
(C) Financial system
(D) Banking system
Answer:
(B) Barter system
Explanation:
Barter system is direct exchange of goods and services. It requires the double coincidence of wants. Barter system eliminates the use of money. It generally flourishes among uncivilized and backward communities. Barter system is possible where the area of exchange is limited.
Question 3.
In a barter system:
(A) Goods are exchanged for money
(B) Goods are exchanged for foreign currency
(C) Goods are exchanged without the use of money
(D) Goods are exchanged on credit.
Answer:
(C) Goods are exchanged without the use of money
Explanation:
Barter is an act of trading goods or services between two or more parties without the use of money. Barter system involves the provision of one good or service by one party in return for another good or service from another party.
Question 4.
Which of the following feature of money acts as an intermediate in the exchange process?
(A) Medium of exchange
(B) Unit of value
(C) Store of value
(D) None of the above
Answer:
(A) Medium of exchange
Explanation:
By serving as a medium of exchange money removes the difficulties associated with the Barter System. Money is authorised by the government of the country and nobody can legally refuse it as a medium of exchange for goods or services.
II. Read the source given below and answer the questions that follows:
Banks use the major portion of the deposits to extend loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to meet the loan requirements of the people. In this way, banks mediate between those who have surplus funds (the depositors) and those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. A large number of transactions in our day-to-day activities involve credit in some form or the other. Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. In rural areas, the main demand for credit is for crop production. Crop production involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. he various types of loans can be conveniently grouped as formal sector loans and informal sector loans. Among the former are loans from banks and cooperatives.
The informal lenders include moneylenders, traders, employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors the banks in actually maintaining cash balance. There is no organisation which supervises the credit activities of lenders in the informal sector. They can lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get their money back. Compared to the formal lenders, most of the informal lenders charge a much higher interest on loans. Thus, the cost to the borrower of informal loans is much higher. In recent years, people have tried out some newer ways of providing loans to the poor. The idea is to organise rural poor, in particular women, into small Self-Help Groups (SHGs) and pool (collect) their savings.
Answer the following MCQs by choosing the most appropriate option
Question 1.
Compared to the formal lenders, most of the informal lenders charge a much interest on loans
(A) Lower
(B) Constant
(C) Higher
(D) No interest
Answer:
(C) Higher
Explanation:
Informal lenders charges high rate interest. They make loans very expensive as they are no external organizations controlling the credit activities of lenders
Question 2.
Formal sector loans include loans from
(I) Banks
(II) Moneylenders
(ID) Cooperatives
(IV) Traders
(A) (i) and (iii)
(B) (ii) and (iv)
(C) (ii) and (iii)
(D) (i) and (iv)
Answer:
(A) (i) and (iii)
Explanation:
These organizations provide cheap and affordable loans and their rate of interest is monitored by RBI.
Question 3.
An agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.
(A) Credit (loan)
(B) Chit fund
(C) Bank
(D) Cheque
Answer:
(A) Credit (loan)
Explanation:
Credit is generally defined as a contract agreement in which a borrower receives a slim of money or something of value and repays the lender at a later date, generally with interest.
Question 4.
Banks use the major portion of the deposits to
(A) Keep as a reserve so that people may withdraw
(B) Meet their routine expenses
(C) Extend loans
(D) Meet renovation of the bank
Answer:
(C) Extend loans
Explanation:
Major portion of the deposits is used by banks for extending loans to borrowers.
III. Read the source given below and answer the questions that follows:
The use of money spans a very large part of our everyday life. Look around you and you would easily be able to identify several transactions involving money in any single day, Gan you make a list of these? In many of these transactions, goods are being bought and sold with the use of money. In some of these transactions, services are being exchanged with money. For some, there might not be any actual transfer of money taking place now but a promise to pay money later- Hayq you ever wondered why transactions are made in money? The reason is simple. A person holding money can easily exchange it for any commodity or service that he or she might want. Thus everyone prefers to receive payments in money and then exchange the money for things that they want. Take the case of a shoe manufacturer. He wants to sell shoes in the market and buy wheat. The shoe manufacturer will first exchange shoes that he has produced for money, and then exchange the money for wheat.
Imagine how much more difficult it would be if the shoe manufacturer had to directly exchange shoes for wheat without the use of money. He would have to look for a wheat growing farmer who not only wants to sell wheat but also wants to buy the shoes in exchange. That is, both parties have to agree to sell and buy each other’s commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. In a barter system where goods are directly exchanged without the use of money, double coincidence of wants is an essential feature. In contrast, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. It is no longer necessary for the shoe manufacturer to look for a farmer who will buy his shoes and at the same time sell him wheat. All he has to do is find a buyer for his shoes. Once he has exchanged his shoes for money, he can purchase wheat or any other commodity in the market. Since money acts as an intermediate in the exchange process, it is called a medium of exchange.
Answer the following MCQs by choosing the most appropriate option Question 1. Why transactions are made in money?
(A) Money is easy to get.
(B) Money is accepted as a medium of exchange.
(C) Everyone has money reserves in their house.
(D) All of the Above.
Answer:
(B) Money is accepted as a medium of exchange.
Explanation:
Money is accepted as a medium of exchange because the currency is authorised by the Government of India.
Question 2.
In …….. both parties have to agree to sell and buy each other’s commodities.
(A) Double Coincidence of wants
(B) Barter System
(C) Bank Regulation
(D) Personal Agreements
Answer:
(B) Barter System
Explanation:
Barter svstem is exchange of commodities of two parties, without paying or? taking money. In double coincidence of wants a person willing to sell something is bought by another person.
Question 3.
How would had the shoe manufacturer directly exchanged shoes for wheat without the use of money?
(A) Both parties have to agree to sell and buy each other’s commodities.
(B) He compels the farmer to give him wheat on compassionate grounds.
(C) He forces the farmer to take the shoes from him in exchange of wheat.
(D) He approaches the bank authorities.
Answer:
(A) Both parties have to agree to sell and buy each other’s commodities.
Explanation:
When two parties agree to sell and buy each other’s commodities, this situation is known as ‘double coincidence of wants*; That is, what a person desires to sell is exactly what the other wishes to buy. Such a situation is a feature of the barter system.
Question 4.
Why barter system is no longer practiced?
(A) Considered illegal
(B) People do not have that much things to exchange
(C) It is difficult to find two parties that have something they both want to trade
(D) Government keeps a check on such an activity
Answer:
(C) It is difficult to find two parties that have something they both want to trade
Explanation:
A barter system lacked not only a common medium of exchange but also a standard unit of account in which prices could be measured and quoted.