(i) People hold money as deposits with banks which pay an interest rate on them. (ii) People do not withdraw the cash daily. (iii) The banks, therefore, hold only 15 per cent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the banks onRead more
(i) People hold money as deposits with banks which pay an interest rate on them.
(ii) People do not withdraw the cash daily.
(iii) The banks, therefore, hold only 15 per cent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the banks on any given day.
(iv) Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
(v) They use major portion of the deposits to extend loans to those who need money.
(vi) The banks make use of the deposits to meet the loans requirements of people.
(vii) Thus, in this way, the banks mediate between those who have surplus money and those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two is the main source of income of the banks.
We need to expand formal sources of credit in India due to the following reasons: (i) The moneylender or the agricultural traders charge a much higher interest on loans. They generally charge 5 per cent per month where as the banks charges about about 10 to 15 percent per annum. The higher rate of iRead more
We need to expand formal sources of credit in India due to the following reasons:
(i) The moneylender or the agricultural traders charge a much higher interest on loans. They generally charge 5 per cent per month where as the banks charges about about 10 to 15 percent per annum. The higher rate of interest do little to increase the income of the borrowers.
(ii) The farmers who take loans from a trader are forced to sell their crop to him at low prices. As a result of it, the farmers suffer while the traders make profit by selling grains at high price.
(iii) Higher interest means the borrower has to pay a major portion of his earnings to repay the interest and principal of the loan. This sometimes leads too debt trap for the borrower.
(iv) On the other hands, banks and cooperatives charge less interest and do not exploit the borrowers. Under these circumstances, there is need for expansion of formal sources of credit in Indian. It is necessary that everyone receives this loans.
(v) This would also leads a higher incomes and many people could then borrow cheaply for a variety of needs. The formal credit in India. It is also necessary that everyone receives this loans.
(vi) It may be added that cheap and affordable credit is crucial for the development of the country.
(i) Money solves the problem of double coincidence of wants because it acts as an intermediates in the exchange process. (ii) People may purchase anything with money. (iii) There is no need to have any goods or commodities for exchange. (iv) Money acts as a medium of exchange. (v) For example, a perRead more
(i) Money solves the problem of double coincidence of wants because it acts as an intermediates in the exchange process.
(ii) People may purchase anything with money.
(iii) There is no need to have any goods or commodities for exchange.
(iv) Money acts as a medium of exchange.
(v) For example, a person working as an engineer in a government department gets salary from his office. With that money (salary) he purchases different goods from the market according to the requirements of his family. He makes payment in cash and does not need any products for exchange process.
(i) High risk situations occur in rural areas because there the main demand for credit is for crop production which involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment. (ii) There is minimum stretch of three to four months between the time when farRead more
(i) High risk situations occur in rural areas because there the main demand for credit is for crop production which involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment.
(ii) There is minimum stretch of three to four months between the time when farmers buy these inputs and when they sell the crop.
(iii) Farmers generally take crop loans at the beginning of the season and repay the loan after harvest.
(iv) Repayment of the loan is crucially dependent on the income from farming.
(v) If a crop fails due to shortage of rain or for any other reason, a small farmer has to sell a part of the land to repay the loan.
(vi) Failure of crops create further problems for the borrowers, Credit does not improve his earnings but leave him worse off than before. Credit in high risks situations pushes the borrower into a debt trap, a situation from which recovery is very painful.
Why are transactional made in money?
Transaction are made in money because a person holding money can easily exchange it for any commodity or services that he as she might want.
Transaction are made in money because a person holding money can easily exchange it for any commodity or services that he as she might want.
See lessHow do banks mediate between those who have surplus money and those who need money?
(i) People hold money as deposits with banks which pay an interest rate on them. (ii) People do not withdraw the cash daily. (iii) The banks, therefore, hold only 15 per cent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the banks onRead more
(i) People hold money as deposits with banks which pay an interest rate on them.
(ii) People do not withdraw the cash daily.
(iii) The banks, therefore, hold only 15 per cent of their deposits as cash with themselves in order to pay the depositors who might come to withdraw money from the banks on any given day.
(iv) Since, on any particular day, only some of its many depositors come to withdraw cash, the bank is able to manage with this cash.
(v) They use major portion of the deposits to extend loans to those who need money.
(vi) The banks make use of the deposits to meet the loans requirements of people.
(vii) Thus, in this way, the banks mediate between those who have surplus money and those who need money. Banks charge a higher interest rate on loans than what they offer on deposits. The difference between the two is the main source of income of the banks.
See lessWhy do we need to expand formal sources of credit in India?
We need to expand formal sources of credit in India due to the following reasons: (i) The moneylender or the agricultural traders charge a much higher interest on loans. They generally charge 5 per cent per month where as the banks charges about about 10 to 15 percent per annum. The higher rate of iRead more
We need to expand formal sources of credit in India due to the following reasons:
(i) The moneylender or the agricultural traders charge a much higher interest on loans. They generally charge 5 per cent per month where as the banks charges about about 10 to 15 percent per annum. The higher rate of interest do little to increase the income of the borrowers.
(ii) The farmers who take loans from a trader are forced to sell their crop to him at low prices. As a result of it, the farmers suffer while the traders make profit by selling grains at high price.
(iii) Higher interest means the borrower has to pay a major portion of his earnings to repay the interest and principal of the loan. This sometimes leads too debt trap for the borrower.
(iv) On the other hands, banks and cooperatives charge less interest and do not exploit the borrowers. Under these circumstances, there is need for expansion of formal sources of credit in Indian. It is necessary that everyone receives this loans.
(v) This would also leads a higher incomes and many people could then borrow cheaply for a variety of needs. The formal credit in India. It is also necessary that everyone receives this loans.
(vi) It may be added that cheap and affordable credit is crucial for the development of the country.
See lessHow does money solve the problem of double coincidence of wants? Explain with an example of your own.
(i) Money solves the problem of double coincidence of wants because it acts as an intermediates in the exchange process. (ii) People may purchase anything with money. (iii) There is no need to have any goods or commodities for exchange. (iv) Money acts as a medium of exchange. (v) For example, a perRead more
(i) Money solves the problem of double coincidence of wants because it acts as an intermediates in the exchange process.
(ii) People may purchase anything with money.
(iii) There is no need to have any goods or commodities for exchange.
(iv) Money acts as a medium of exchange.
(v) For example, a person working as an engineer in a government department gets salary from his office. With that money (salary) he purchases different goods from the market according to the requirements of his family. He makes payment in cash and does not need any products for exchange process.
See lessIn situations with high risks, credit might create further problems for the borrower. Explain.
(i) High risk situations occur in rural areas because there the main demand for credit is for crop production which involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment. (ii) There is minimum stretch of three to four months between the time when farRead more
(i) High risk situations occur in rural areas because there the main demand for credit is for crop production which involves considerable costs on seeds, fertilisers, pesticides, water, electricity, repair of equipment.
(ii) There is minimum stretch of three to four months between the time when farmers buy these inputs and when they sell the crop.
(iii) Farmers generally take crop loans at the beginning of the season and repay the loan after harvest.
(iv) Repayment of the loan is crucially dependent on the income from farming.
(v) If a crop fails due to shortage of rain or for any other reason, a small farmer has to sell a part of the land to repay the loan.
(vi) Failure of crops create further problems for the borrowers, Credit does not improve his earnings but leave him worse off than before. Credit in high risks situations pushes the borrower into a debt trap, a situation from which recovery is very painful.
See less