Question

EXERCISES
1.
In situations with high risks, credit might create further problems for the borrower.
2. How does money solve the problem of double coincidence of wants? Explain with
3. How do banks mediate between those who have surplus money and those who
4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
an example of your own.
need money?
5. Why do we need to expand formal sources of credit in India?
What is the basic idea behind the SHGs for the poor? Explain in your own words.
7. What are the reasons why the banks might not be willing to lend to certain borrowers?​

Answer 1

Answer:

1. In situations with high risks, credit might create further problems for the borrower.

Ans:

• Yes, that is correct. In situations where there is a high level of risk, taking on additional credit can create further problems for the borrower. This is because when the risk of default or financial distress is high, the interest rates on loans are typically higher, which increases the cost of borrowing. Additionally, in high-risk situations, lenders may also be more likely to impose stricter terms and conditions on loans, such as higher collateral requirements or shorter repayment periods.

2. How does money solve the problem of double coincidence of wants? Explain with.

Ans:

• The problem of double coincidence of wants occurs in barter systems, where an individual must find another individual who wants what they have to offer and also has something that they want. Money solves this problem by acting as a medium of exchange that can be used to purchase any goods or services that are for sale.
• Money acts as a common denominator for all goods and services, allowing individuals to trade without the need for a double coincidence of wants. Instead of having to find someone who wants what they have and also has something they want, individuals can use the money to purchase what they want from any seller who is willing to accept it.

3. How do banks mediate between those who have surplus money and those who

Ans:

• Banks mediate between those who have surplus money and those who need money by accepting deposits from individuals and businesses who have surplus money and then lending that money to other individuals and businesses who need it.
• When someone deposits money into a bank account, the bank uses that money to make loans to other people. The bank also earns interest on the loans it makes, and it pays interest to the depositors for the use of their money. This allows individuals and businesses with surplus money to earn a return on their savings, while also providing a source of funding for those who need money.

4. Look at a 10 rupee note. What is written on top? Can you explain this statement?

Ans:

• However, typically when you look at a 10 rupee note from India, you will see the following statement written on top: "Reserve Bank of India"
• This statement indicates that the 10 rupee note is issued by the Reserve Bank of India (RBI), which is the central bank of India. The Reserve Bank of India is responsible for issuing and regulating the supply of currency in the country, and it is also responsible for maintaining price stability and ensuring financial stability.

5. Why do we need to expand formal sources of credit in India?

Ans:

• Expanding formal sources of credit in India is important for a number of reasons. One of the main reasons is to increase access to finance for people and businesses who may not have access to traditional forms of credit, such as bank loans. This is particularly important in India where a large segment of the population is unbanked and does not have access to the formal financial system.

6. What is the basic idea behind the SHGs for the poor? Explain in your own words.

Ans:

• The basic idea behind the Self-Help Groups (SHGs) is to provide a platform for people living in poverty to access credit and financial services, which they would not have access to otherwise. They are groups of individuals, mostly from low-income communities, who come together to save money and borrow collectively. The members of SHGs are usually from the same socio-economic background and have a similar financial situation, they build trust among each other and take collective responsibility for the repayment of loans.

7. What are the reasons why banks might not be willing to lend to certain borrowers?​

Ans:

There are several reasons why banks might not be willing to lend to certain borrowers. Some of these reasons include:

1. Lack of credit history or poor credit score: Banks rely on credit scores and credit history to evaluate the creditworthiness of a potential borrower. If a borrower has no credit history or a poor credit score, it may indicate that they are at a higher risk for default. Banks may be hesitant to lend to such borrowers as they might not be able to repay the loan.
2. High debt-to-income ratio: Banks use the debt-to-income ratio to evaluate the borrower's ability to repay the loan. A high debt-to-income ratio may indicate that the borrower has too much debt relative to their income, which may make it difficult for them to repay the loan.

Overall, banks are in the business of lending money, but they are also in the business of managing risk.

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>>gauravmali846

>>editby gauravmali846