Money and Credit
Commerce is the process of exchanging goods and services on a large scale. Commerce is an important academic stream that imparts detailed knowledge related to economy, finance, accounting, and other topics which you can easily relate to daily lives. Specifically, the subjects included in this stream are Economics, Business Studies, Accountancy, and English along with a choice of Maths or Computer Science. It is a very important subject that will help students learn about how the business world actually works.
Since commerce involves a lot of processes to be completed it will have to employ lots of laborers in the process, thus it easily generates various employment opportunities in other areas such as transport and logistics, banking, and retail. Commerce overall is an essential component of national development and wealth creation which highly contributes to the economy of the country. Commerce education is mainly aimed at giving adequate knowledge about the wholesale trade, retail, export trade, import trade, and entire- port trade. Moreover, it provides some knowledge about the movement of goods, etc., Transport, Communication Insurance, Ware-housing, Money, Banking & Finance, and Mercantile Agencies.
Explanation
Money serves as a decent medium of exchange that enables the user to make transactions and buy goods and avail services from any form of business that prevails in the market.
Credit is the money borrowed for some personal use from a bank or lender based on the promise that the money will be paid back in the future along with the interest amount that will be calculated for every month. The flow of credit in an economy controls the money supply of any country and affects the stock market too.
Introduction about Money and Credit
Money, in its rudimentary understanding, relates to the currency that we use. It can be either in the form of paper notes or coins. However, the scope of the concept of money is much broader as it includes a whole host of instruments within it.
Credit, as it is understood in the common parlance means borrowing, but technically, it also falls within the ambit of money.
Read on to know more about money and credit.
Main Functions of Money
Money and credit notes would mention the following as the role of money within the present-day economy in relation to -
Production
For deciding, planning, executing, and managing activities of production.
Distribution
Allocation of reward across various production factors in the form of rent, wages, interest, etc.
Consumption
Payment by consumers for goods or services
Capital Formation
Savings may be mobilized for investment into profitable ventures.
External Trade
Foreign currencies in external trade are taken as receipts.
Public Finance
Government receives taxes as a way of income and subsequently makes an expenditure for administrative and development processes.
Various Functions of Credit
The main functions of credit to be presented in money and credit ppt are –
There is elimination or minimization of the inconveniences or risks that are present in a cash transaction.
Remittance of funds becomes much easier with credit instruments.
Large scale production is facilitated by the credit system.
Short-term credit is crucial for industries.
Different Forms of Money
For the money and credit class 10 project, you may have to mention the various forms of money. The different forms of money are –
Paper Money
It includes notes of various denominations, made out of paper and issued by the Central bank.
Metallic Money
Metallic money includes both token money and coins. The coins represent metallic money and are mainly issued in the denominations of Rs. 1, 2, 5, and 10.
Legal Money
It indicates the money that is accepted as a valid means for payment in discharging a debt. All coins and notes issued by the Reserve Bank of India or the government fall within this category.
Bank Money
Forms of bank money include cheques, drafts, and bills of exchange.
Near Money
Any type of instrument which is easily convertible to money is called near money. Examples – government bonds, deposits, etc.
Plastic Money
Smart cards, credit cards, etc. are termed as plastic money.
How is Credit Extended?
The main two forms of availing credit are – (1) Bank loan, and (2) Credit card. For money and credit extra questions, an elucidation may be required on this point.
Banks hold on to cash deposits, which are termed as cash reserve ratio. This fund is generated from the money that is deposited by the customers of the bank. A portion of such a deposit is lent out as a credit, at an interest rate. This interest corpus then acts as the income of the bank.
Credit cards, as another way for availing credit, will find an explanation in the money and credit project pdf. Credit cards are used to pay for purchased services or products without having to pay cash. The payment is undertaken electronically. The debt owed to the credit card company will have to be repaid at the end of the billing cycle.
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FAQs on All About Money and Credit: Explained
1. What are the basic concepts of money and credit as explained in Class 10 Economics?
Money is an asset that is universally accepted as a medium of exchange for goods and services, eliminating the need for a 'double coincidence of wants' that was a major problem in the barter system. Credit is an agreement where a lender provides funds, goods, or services to a borrower, with the understanding that the borrower will repay the amount in the future, typically with an added charge known as interest.
2. What are the modern forms of money used in India's economy?
The modern forms of money in India primarily consist of two types as per the NCERT syllabus for the 2025-26 session:
- Currency: This includes paper notes and coins officially issued by the country's central monetary authority. In India, the Reserve Bank of India (RBI) is responsible for issuing currency notes.
- Demand Deposits: This is the money that people deposit in bank accounts. It is considered money because it can be withdrawn on demand and used for payments via cheques or digital means, making it a widely accepted form of payment.
3. What is the main difference between formal and informal sources of credit?
The primary difference between these two sources of credit lies in their regulation and lending practices. Formal sources, such as banks and cooperatives, are supervised by the Reserve Bank of India (RBI). They typically offer loans at lower interest rates with transparent terms. In contrast, informal sources like moneylenders, traders, and relatives are not regulated by any official body. They often charge very high interest rates and may use non-standard methods for loan recovery, which can lead to a debt trap for the borrower.
4. Why is money considered essential for overcoming the limitations of the barter system?
Money acts as an intermediate in the exchange process, which directly solves the biggest limitation of the barter system: the double coincidence of wants. In a barter economy, a transaction can only happen if two individuals possess goods that they both desire from each other. Money eliminates this requirement. A person can sell their goods for money and then use that money to purchase whatever they need from someone else, making trade far more efficient and flexible.
5. What is collateral, and why is it an important requirement for many types of loans?
Collateral is an asset, such as land, a building, a vehicle, or bank deposits, that a borrower owns and pledges as a guarantee to a lender until a loan is fully repaid. Lenders, especially in the formal sector, demand collateral to secure the loan. If the borrower defaults or fails to repay the loan, the lender has the legal right to sell the collateral to recover the outstanding amount. This practice significantly reduces the financial risk for the lender.
6. How can the 'terms of credit' be either beneficial or harmful to a borrower? Provide examples.
The 'terms of credit'—which include the interest rate, collateral, documentation, and repayment schedule—critically determine the outcome for a borrower.
- Beneficial Example: A farmer takes a loan with a low-interest rate and a flexible repayment schedule. This allows them to invest in better seeds and equipment, leading to a successful harvest and profit after repaying the loan.
- Harmful Example: A small vendor takes a loan from an informal moneylender at a very high interest rate. If their business slows down, the accumulating interest can exceed their earnings, pushing them into a debt trap where they have to take new loans just to pay off the old one.
7. Explain the importance of Self-Help Groups (SHGs) in providing credit to the rural poor in India.
Self-Help Groups (SHGs) are vital for the financial empowerment of the rural poor, especially women. Their importance is multifaceted:
- Access to Credit: They help members overcome the lack of collateral, a major barrier to getting loans from formal banks. Banks are often willing to lend to a SHG as a collective unit.
- Financial Discipline: SHGs encourage regular savings among members, creating a pooled fund for small, emergency loans at reasonable interest rates.
- Empowerment: Beyond finance, SHGs act as crucial platforms for discussing and addressing social issues, thereby boosting the confidence and social standing of their members.
8. What is the role of the Reserve Bank of India (RBI) in supervising the Indian banking system?
The Reserve Bank of India (RBI) acts as the primary regulator of the formal financial sector in India. Its key supervisory roles include:
- Issuing currency notes on behalf of the central government.
- Ensuring that banks maintain a minimum cash balance (as per the Cash Reserve Ratio) from their deposits.
- Monitoring banks to ensure they provide loans not only to large, profitable businesses but also to priority sectors like small-scale industries, cultivators, and other small borrowers.
- Overseeing the interest rates and lending practices of all formal financial institutions.
