CG Board Class 10 Social Science Chapter 18 Solutions: Money and Credit (मुद्रा एवं साख) (2026-27)

d) Reserve Bank of India**

c) Bank savings account**

c) Trader* (Informal credit source)*

c) Fixed deposit**

The primary purpose of credit is to provide immediate financial liquidity to borrowers to meet current production expenses, invest in income-generating assets (such as buying machinery, seeds, houses), and fulfill personal or trade requirements before actual income is earned.

A common measure for money is essential because without a standard unit of account, it is impossible to evaluate, compare, and determine the exact price of different goods and services, leading to confusion and inefficiencies like those in the barter system.

Demand deposits (money stored in savings and current accounts) allow account holders to safely store surplus cash and withdraw or transfer funds at any time on demand using cheques, ATMs, or digital banking without pre-notice to the bank.

The main types of bank accounts are

1. Savings Account: For individuals to save surplus income; offers moderate interest and easy withdrawal.
2. Current Account: For businessmen and commercial firms; allows unlimited daily transactions but yields no interest.
3. Fixed Deposit Account (FD): Money deposited for a fixed period; earns the highest interest rate but cannot be withdrawn prematurely without penalty.

In 30 years, physical paper currency and plastic cards may be largely replaced by fully digital Central Bank Digital Currencies (CBDC), biometric payment systems (using palm/retina scans), microchip implant payments, and decentralized secure digital ledgers where cash transactions become extremely rare.

To ensure universal loan access

1. Expand bank branches and regional rural cooperative banks in remote rural areas.
2. Simplify documentation procedures and relax rigid collateral requirements.
3. Promote Self-Help Groups (SHGs) and micro-credit institutions for landless labourers and poor women.
4. Enforce RBI targets requiring 40% priority sector lending to agriculture and small artisans.

A loan helps when invested in productive work yielding higher returns than the interest cost (e.g., buying a shop machine or building a house). However, if the investment fails due to unforeseen risks (e.g., Swapna’s crop destruction by pests or business failure) or if loans are taken at exorbitant interest from informal moneylenders, the borrower must borrow again to pay interest, getting trapped in a cumulative debt trap where assets must be sold.

Terms and conditions protect both lender and borrower

1. Interest Rate: Pay rent for using lender’s capital (e.g., 10% per annum on housing loan).
2. Time Period: Defines repayment schedule (e.g., 10-year tenure for home loan).
3. Collateral/Mortgage: Security asset pledged to recover dues if borrower defaults (e.g., mortgaging house documents or gold).
4. Documentation: Legal proof of identity and income capacity.

Without RBI oversight

1. Commercial banks might charge exorbitant interest rates and lend only to wealthy profit-making corporations, ignoring poor farmers.
2. Banks might not maintain adequate cash reserves (CRR/SLR), leading to bank failures during heavy cash withdrawals and loss of public trust.
3. Fraudulent activities and speculative investments in share markets would collapse the national monetary stability.

1. Agricultural Trade: A farmer takes a short-term crop loan to buy seeds and fertilizers before sowing season and repays after selling harvest.
2. Business Expansion: A trader takes a commercial bank loan to buy raw materials and inventory to fulfill large customer orders.
3. Personal Expenditure: A salaried employee takes an educational or housing loan to fund children’s higher education or construct a family house.

Bank deposits (demand deposits) are treated as money because

1. They are universally accepted as a medium of payment through cheques, debit cards, and electronic transfers without using physical cash.
2. They can be converted into liquid cash at any time on demand.
3. They enjoy legal sanction and government backing through the banking framework monitored by the Reserve Bank of India.