Money and Credit Class 10 Notes: CBSE Economics Chapter 3

Money as a Medium of Exchange

• Money is referred to as a medium of exchange because it serves as an intermediary in the exchange process. 

• A person who has money can readily swap it for whatever commodity or service he or she desires. 

Double Coincidence of Wants: It occurs when both parties agree to sell and buy each other's commodities at the same time in the trade. Double coincidence of wants is a key element of the barter system.

Modern Forms of Money

Indians utilised wheat and livestock as currency in the past. Following that came the use of metallic coinage, such as gold, silver, and copper coins, which lasted well into the twentieth century. Currency - paper notes and coins – are now modern forms of money. The current kinds of money - currency and deposits – are inextricably related to the modern banking system's operation.

Currency: The Reserve Bank of India, on behalf of the Indian government, issues currency notes. No other person or organisation is permitted to print money. In India, the rupee is generally recognised as a medium of exchange.

Deposit in Banks: People might also keep their money in the form of bank deposits. People put their surplus money in the bank by opening a bank account in their own name. Banks not only accept deposits, but they also pay interest on them. Deposits in bank accounts that can be withdrawn on demand are referred to as demand deposits. Cheques are used instead of cash to make payments.

Cheques: It's a piece of paper that instructs the bank to transfer a specified amount from a person's account to the person named on the check.

Loan Activities of Banks

• Banks only hold a small amount of their deposits in cash on hand. In India, banks now maintain approximately 15% of their deposits in cash. This is retained as a reserve to pay depositors who may come to the bank on any given day to withdraw money.

• The majority of deposits are used to extend loans by banks. Loans for numerous economic activities are in high demand. On loans, banks charge a greater interest rate than they do on deposits.

• Banks' major source of income is the difference between what they charge borrowers and what they pay depositors.

Two Different Credit Situations

A credit (loan) arrangement is one in which the lender provides money, products, or services to the borrower in exchange for the promise of future payment.

There are two types of credit situations: one is where you have a lot of money and the other is where

i. In the first scenario, a person borrows money for production purposes with the promise of repaying the loan at the end of the year when the work is accomplished. And by the end of the year, he or she has made a big profit from manufacturing operations and is able to repay the loan. As a result, the person is in a better position than previously.

ii. In the second scenario, a person borrows money for production purposes with the promise of repaying the loan at the end of the year, when the production job is accomplished. And by the end of the year, he or she has fallen into a financial trap. As a result, that person is in a worse situation than before.

Terms of Credit

Every loan agreement stipulates an interest rate that must be paid to the lender in addition to the principal repayment. Lenders also want collateral (security) in exchange for loans.

1. Collateral is an asset that a borrower holds, such as land, a building, a vehicle, livestock, or bank savings, that the borrower uses as a guarantee to a lender until the loan is returned. If the borrower fails to repay the loan, the lender has the authority to sell the asset or collateral to recover payment.

2. The terms of credit include the interest rate, collateral and documentation requirements, as well as the form of repayment. It varies depending on the lender's and borrower's personalities.

Formal Sector Credit in India

Credit that is both cheap and accessible is critical for the country's prosperity. The numerous forms of loans can be divided into the following categories:

1. Formal Sector Loans: Loans from the formal sector include those from banks and cooperatives. The Reserve Bank of India (RBI) is in charge of overseeing the operation of formal loan sources. Banks must report to the RBI how much they are lending, to whom, and at what interest rate, among other things.

2. Informal Sector Loans: Loans from the informal sector include those from moneylenders, traders, employers, family, and friends, among others. There is no regulatory body that oversees the lending activities of informal lenders. There is no one to stop them from obtaining their money by unethical means.

Formal and Informal Credit

Formal Credit: The RBI oversees the operation of formal sources of loans, which includes banks and cooperatives. To ensure that the bank maintains a minimum cash balance and that loans are given not just to profit-making businesses and dealers, but also to small growers, small scale industries, small borrowers, and so on. Banks are required to report their actions to the RBI on a regular basis.

Informal Credit: Money lenders, traders, employers, relatives, and friends are just a few examples. There is no one in charge of monitoring their credit operations. They can charge any interest rate they want. There is no one to stop them from obtaining their money by unethical means.

Self Help Groups for the Poor

Poor households continue to rely on informal sources of financing for the following reasons:

• In rural India, banks are not widely available.

• Even if banks are present, obtaining a bank loan is substantially more difficult because adequate documentation and collateral are required.

Self-Help Groups were formed to address these issues (SHGs). SHGs are small groups of poor people who encourage their members to save small amounts of money. A typical SHG includes 15-20 members who meet and save on a regular basis, usually from the same neighbourhood. 

Advantages of Self Help Group (SHG):

• It assists borrowers in overcoming the lack of collateral issues.

• SHGs are the foundations of the rural poor's organisation.

• People can receive loans on schedule and at a fair interest rate for a number of objectives.

• It assists women in becoming financially self-sufficient.

• The group's frequent meetings give a forum for discussing and taking action on a variety of social concerns such as health, nutrition, domestic violence, and so on.

Do you Know?

Ch 3 Economics Class 10 will tell you that the development of a country depends upon the affordability and availability of credit. The different types of loans are as follows:

• Formal Sector Loans: Loans from banks and cooperatives are called formal sector loans. These are monitored by the Reserve Bank of India.

• Informal Sector Loans: Loans from moneylenders, traders, relatives are called informal sector loans. This type of loan is monitored by none.

5 Important Topics of Class 10 Money and Credit Notes Chapter 3

Importance of Class 10th Economics Chapter 3 Notes

• Class 10 Eco Ch 3 Notes help us quickly understand and remember key concepts before exams.

• They save time by focusing on essential information and skipping unnecessary details.

• These notes simplify complex topics, making them easier to understand and use.

• They provide practical examples that show how theoretical knowledge is used in real-life situations.

• Revision notes ensure thorough preparation by covering all important topics in a structured manner.

• They increase confidence by clearly understanding what to expect in exams.

• Accessible formats like PDFs allow for easy studying anytime and anywhere.

Tips for Learning the Economics Chapter 3 Class 10 notes

• Start by learning the basic functions of money and the types of money, such as commodity money, paper money, and digital money.

• Focus on how credit works, including different forms of credit like loans and credit cards. Understand the role of interest rates and repayment terms.

• Study the role of banks in the credit system. Know how banks provide loans, accept deposits, and manage financial transactions.

• Connect concepts to real-life scenarios. Think about how money and credit affect your own daily transactions and financial decisions.

Conclusion

Vedantu’s notes for Class 10 Economics Chapter 3, "Money and Credit," provide a comprehensive understanding of how money functions and the role of credit in the economy. This chapter explains the different forms of money, the mechanisms of credit, and the crucial role banks play in providing loans and managing financial transactions. By studying these concepts, students gain insight into how money and credit impact economic activities and personal finances. Vedantu’s clear explanations and examples make these concepts accessible, helping students connect theory with real-world applications. This foundation will not only aid in academic success but also enhance financial literacy for practical use in everyday life.

Related Study Materials for Class 10 Economics Chapter 3 Money and Credit

Chapter-wise Revision Notes Links for Class 10 Economics

Important Study Materials for Class 10 Economics