TRUE / FALSE – MONEY AND CREDIT

TOPIC 1: MONEY AS A MEDIUM OF EXCHANGE

Q1.

A farmer can sell wheat for money and later use that money to purchase a bicycle without finding a bicycle seller who wants wheat.
True / False

Q2.

Money can solve the problem of double coincidence of wants only when both parties directly exchange their goods.
True / False

Q3.

The use of money allows the act of selling to be separated from the act of purchasing.
True / False

Q4.

Under a barter system, a person can always exchange a commodity easily even if the other person does not want it.
True / False

Q5.

Money makes exchange easier because it is generally accepted as a medium of payment.
True / False

Q6.

If a carpenter wants rice but the farmer wants shoes instead of furniture, direct barter between them may become difficult.
True / False

Q7.

Money completely removes the need for people to produce goods that others demand.
True / False

TOPIC 2: MODERN FORMS OF MONEY

Q8.

Modern money includes currency as well as certain deposits held in banks.
True / False

Q9.

The purchasing power of a modern currency note mainly comes from the high intrinsic value of the paper on which it is printed.
True / False

Q10.

People accept currency partly because they trust that other people will accept it in future transactions.
True / False

Q11.

If people completely lose confidence in a currency, its usefulness as a medium of exchange can be affected.
True / False

Q12.

Modern currency can function effectively even if nobody is willing to accept it for buying goods and services.
True / False

Q13.

Money provides a common unit in which the prices of different goods can be expressed.
True / False

Q14.

The value of a ₹500 note in a transaction depends mainly on the market value of the paper used to make the note.
True / False

TOPIC 3: CURRENCY AND BANK DEPOSITS

Q15.

A person may deposit money in a bank instead of keeping all of it as physical cash.
True / False

Q16.

Once money is deposited in a bank, the depositor permanently loses all rights over that money.
True / False

Q17.

Bank deposits are considered part of modern money because they can be used to make payments.
True / False

Q18.

Banks keep every rupee deposited by customers separately in cash so that it can never be used for lending.
True / False

Q19.

Deposits are liabilities of banks because banks have an obligation towards their depositors.
True / False

Q20.

The banking system has no role in connecting people who have surplus funds with people who need credit.
True / False

Q21.

Banks retain some cash because depositors may need to withdraw money from their accounts.
True / False

TOPIC 4: DEMAND DEPOSITS AND CHEQUES

Q22.

Demand deposits can be used as money because they can be used to make payments.
True / False

Q23.

A cheque allows a person to make a payment without necessarily handing over physical currency notes.
True / False

Q24.

A cheque guarantees payment even if the issuer has insufficient funds and no other credit arrangement.
True / False

Q25.

The use of cheques can make large transactions more convenient because people need not carry large amounts of cash.
True / False

Q26.

A cheque creates purchasing power independently of the bank account from which it is issued.
True / False

Q27.

Demand deposits are useful because depositors can generally access their money when required, subject to the terms of the account.
True / False

Q28.

The existence of demand deposits means that physical currency is no longer used in any economic transaction.
True / False

TOPIC 5: LOAN ACTIVITIES OF BANKS

Q29.

Banks generally keep only a small proportion of their deposits as cash and lend a significant portion to borrowers.
True / False

Q30.

Banks can lend every rupee deposited with them without keeping any cash because depositors never withdraw money simultaneously.
True / False

Q31.

Banks earn income by charging interest on loans provided to borrowers.
True / False

Q32.

Banks act as intermediaries by accepting deposits from savers and lending part of the funds to borrowers.
True / False

Q33.

The lending activity of banks has no connection with the availability of credit in an economy.
True / False

Q34.

Banks have to consider the possibility of withdrawals while deciding how much money they can safely lend.
True / False

Q35.

The difference between the interest received from borrowers and the interest paid to depositors can contribute to bank income.
True / False

TOPIC 6: CREDIT AND ITS IMPORTANCE

Q36.

Credit can help a producer purchase raw materials before receiving payment from customers.
True / False

Q37.

Every person who takes a loan automatically becomes economically better off.
True / False

Q38.

Productive credit can help increase income if the activity financed by the loan is successful.
True / False

Q39.

A loan can become a burden when the income generated by the borrowed money is insufficient to meet repayment obligations.
True / False

Q40.

Credit is useful only for large industries and has no role in the activities of small producers.
True / False

Q41.

The same amount of credit can produce different outcomes for different borrowers depending on how the money is used and the conditions of the loan.
True / False

Q42.

Credit can contribute to economic development when it is used for productive investment and income-generating activities.
True / False

TOPIC 7: TERMS OF CREDIT

Q43.

The interest rate is one of the important terms that a borrower should consider before accepting a loan.
True / False

Q44.

A borrower needs to consider only the loan amount; interest rate, collateral and repayment conditions have no importance.
True / False

Q45.

Collateral is an asset that a borrower may pledge as security against a loan.
True / False

Q46.

A higher interest rate generally increases the cost of borrowing, other things remaining unchanged.
True / False

Q47.

The repayment period of a loan has no effect on the financial obligations of the borrower.
True / False

Q48.

Two loans with the same principal amount may impose different financial burdens because their interest rates and other terms may differ.
True / False

Q49.

Collateral can reduce the lender’s risk because the lender may have a claim over the pledged asset if the borrower fails to repay according to the agreement.
True / False

TOPIC 8: FORMAL SOURCES OF CREDIT

Q50.

Banks and cooperative societies are examples of formal sources of credit.
True / False

Q51.

Formal lenders operate completely outside government rules and regulatory institutions.
True / False

Q52.

Formal credit may require documentation, proof of repayment capacity or collateral depending on the type of loan.
True / False

Q53.

Regulation of formal credit can help protect borrowers from certain unfair lending practices.
True / False

Q54.

Every poor household can obtain a formal loan automatically without meeting any lending conditions.
True / False

Q55.

Expanding access to formal credit can reduce the dependence of borrowers on informal lenders.
True / False

Q56.

Banks are formal institutions because their lending activities are conducted within an organised financial and regulatory framework.
True / False

TOPIC 9: INFORMAL SOURCES OF CREDIT

Q57.

Moneylenders are an example of an informal source of credit.
True / False

Q58.

Informal lenders are generally subject to exactly the same regulatory supervision as commercial banks.
True / False

Q59.

Informal lenders may sometimes provide loans more quickly than formal institutions.
True / False

Q60.

A loan that is easy to obtain from an informal lender is necessarily a low-cost loan.
True / False

Q61.

Informal credit may include loans obtained from moneylenders, traders, employers, relatives or friends.
True / False

Q62.

Informal lending can sometimes involve high interest rates that increase the repayment burden of borrowers.
True / False

Q63.

The convenience of informal credit should not prevent a borrower from considering its interest rate and repayment conditions.
True / False

TOPIC 10: FORMAL VS INFORMAL SOURCES OF CREDIT

Q64.

Formal credit is generally subject to greater institutional regulation than informal credit.
True / False

Q65.

Since informal lenders may provide loans quickly, informal credit is always better than formal credit.
True / False

Q66.

Formal lenders may require documents or collateral that some borrowers may find difficult to provide.
True / False

Q67.

The difference between formal and informal credit is limited only to the speed at which loans are provided.
True / False

Q68.

When comparing loans, borrowers should consider interest rates, repayment conditions, collateral requirements and accessibility.
True / False

Q69.

Formal and informal sources may differ substantially in regulation, interest rates and terms of credit.
True / False

Q70.

Greater access to formal credit can give borrowers an alternative to potentially exploitative informal lenders.
True / False

TOPIC 11: CREDIT IN RURAL AREAS AND DEBT TRAP

Q71.

A farmer may borrow money to purchase seeds, fertilisers and other agricultural inputs.
True / False

Q72.

A farmer who takes a productive loan is guaranteed to repay it successfully regardless of crop failure or market conditions.
True / False

Q73.

Crop failure can reduce a farmer’s ability to repay a loan.
True / False

Q74.

A borrower may enter a debt trap if repeated borrowing is required to repay earlier loans.
True / False

Q75.

High interest rates can increase the repayment burden and may contribute to debt problems.
True / False

Q76.

Rural households borrow only for agricultural production and never for medical emergencies or other consumption needs.
True / False

Q77.

Affordable formal credit can reduce rural borrowers’ dependence on high-cost informal credit.
True / False

TOPIC 12: SELF-HELP GROUPS (SHGs) AND AFFORDABLE CREDIT

Q78.

Members of Self-Help Groups generally contribute small amounts regularly to create a common savings fund.
True / False

Q79.

SHGs are useful only for wealthy households because poor households cannot participate in group savings.
True / False

Q80.

SHGs can provide small loans to members from the pooled savings of the group.
True / False

Q81.

The functioning of SHGs can depend on cooperation, mutual trust and collective responsibility among members.
True / False

Q82.

SHGs have no connection with formal financial institutions and cannot help members obtain bank credit.
True / False

Q83.

SHGs can help poor households reduce their dependence on moneylenders by improving access to affordable credit.
True / False

Q84.

SHGs can support members in undertaking small income-generating activities through access to credit.
True / False

DETAILED ANSWER KEY

Topic 1 — Money as a Medium of Exchange

Q	Answer	Detailed Explanation
1	True	Money acts as a medium of exchange. The farmer can first sell wheat for money and later use the money to purchase a bicycle. A direct wheat-for-bicycle exchange is therefore unnecessary.
2	False	This describes the opposite of money’s role. Money solves the double coincidence problem because the buyer and seller do not need to possess mutually desired goods.
3	True	Money allows selling and purchasing to occur separately. A person may receive money today and spend it later.
4	False	Barter requires a suitable match between the wants of the two parties. If the other person does not want the commodity offered, direct exchange may fail.
5	True	General acceptability makes money convenient for transactions. People accept money because they expect it to be accepted by others.
6	True	This is a classic example of the difficulty of double coincidence of wants. The carpenter and farmer want different things, so direct barter may not work.
7	False	Money facilitates exchange but does not eliminate the need to produce goods and services demanded by consumers.

Topic 2 — Modern Forms of Money

Q	Answer	Detailed Explanation
8	True	Modern money includes currency and demand deposits in banks. Both can be used for making payments.
9	False	Currency does not derive its purchasing power mainly from the physical paper. Its acceptability, legal status and people’s confidence are important.
10	True	Money works because people have confidence that others will accept it. This makes it possible to use the same money in future transactions.
11	True	Confidence is important to a monetary system. A serious loss of confidence can reduce the willingness of people to accept the currency.
12	False	General acceptance is essential to the usefulness of money. If nobody accepts it, it cannot effectively serve as a medium of exchange.
13	True	Money provides a common unit of account, allowing prices such as ₹50, ₹100 or ₹500 to be compared easily.
14	False	The physical paper has very little value compared with the face value of the note. Its purchasing power comes from its monetary status and acceptance.

Topic 3 — Currency and Bank Deposits

Q	Answer	Detailed Explanation
15	True	People often keep money in bank accounts because deposits are safer and can be used conveniently for payments.
16	False	Depositing money creates a claim of the depositor against the bank. The depositor can generally withdraw or use the money according to account conditions.
17	True	Demand deposits can be used to make payments and therefore form an important part of modern money.
18	False	Banks do not keep every deposited rupee separately as idle cash. They retain a portion as cash and lend a significant part.
19	True	A bank owes the deposited amount to its customers. Therefore, deposits are recorded as liabilities of the bank.
20	False	One of the important roles of banks is to connect savers and borrowers by accepting deposits and providing loans.
21	True	Banks need cash or liquidity because depositors may withdraw money. This is why banks cannot safely lend every rupee deposited.

Topic 4 — Demand Deposits and Cheques

Q	Answer	Detailed Explanation
22	True	Demand deposits can be used for payments and can generally be accessed when required. This makes them part of modern money.
23	True	A cheque allows payment through the banking system rather than requiring the payer to hand over physical currency.
24	False	A cheque does not guarantee payment if the account lacks sufficient funds or an applicable credit facility.
25	True	Cheques and other banking payment methods reduce the need to physically carry large amounts of cash.
26	False	A cheque does not independently create purchasing power. It is linked to funds or credit available through the bank account.
27	True	Demand deposits are designed to be accessible when required, subject to the conditions of the particular account.
28	False	Physical currency continues to be used alongside demand deposits and other forms of payment.

Topic 5 — Loan Activities of Banks

Q	Answer	Detailed Explanation
29	True	Banks retain only a proportion of deposits as cash and use a significant portion for lending.
30	False	Banks must maintain liquidity to meet withdrawals. Lending all deposits would create serious problems if depositors demanded their money.
31	True	Interest charged on loans is a major source of income for banks.
32	True	Banks act as intermediaries by taking deposits from people with surplus funds and lending part of those funds to people who need credit.
33	False	Bank lending directly contributes to the availability of credit for households, producers and businesses.
34	True	Banks have to maintain a balance between lending and keeping enough liquidity to satisfy withdrawal demands.
35	True	Banks generally pay interest to depositors and receive interest from borrowers. The difference contributes to their income.

Topic 6 — Credit and Its Importance

Q	Answer	Detailed Explanation
36	True	Credit can finance raw materials or other inputs before the producer receives revenue from sales.
37	False	Borrowing does not automatically improve economic well-being. The result depends on the purpose, cost and repayment conditions of the loan.
38	True	Productive credit can finance an activity that generates additional income, making repayment possible.
39	True	If the activity does not generate enough income, the borrower may struggle to repay principal and interest.
40	False	Small producers, farmers, shopkeepers and households can also use credit productively.
41	True	A loan used for a profitable activity may improve income, while the same loan used under unfavourable conditions may create repayment problems.
42	True	Productive credit can finance investment, production and income-generating activities and therefore contribute to economic development.

Topic 7 — Terms of Credit

Q	Answer	Detailed Explanation
43	True	Interest determines an important part of the cost of borrowing and must be considered before accepting a loan.
44	False	Interest rate, collateral, documentation and repayment period can significantly affect the actual cost and accessibility of credit.
45	True	Collateral is an asset pledged by the borrower as security for the loan, such as property or another acceptable asset.
46	True	Other things remaining unchanged, a higher interest rate means a greater repayment burden.
47	False	Repayment period determines when and over what period the borrower must make payments. It can significantly affect financial pressure.
48	True	Two loans of the same amount can have very different costs because of different interest rates, repayment periods, collateral and other conditions.
49	True	Collateral provides security to the lender. If the borrower defaults, the lender may have rights over the pledged asset according to the agreement.

Topic 8 — Formal Sources of Credit

Q	Answer	Detailed Explanation
50	True	Banks and cooperative societies are recognised formal sources of credit.
51	False	Formal lenders operate within established laws, regulations and institutional frameworks.
52	True	Formal lenders may require documents, income information, collateral or other evidence depending on the loan.
53	True	Regulation can help prevent certain unfair lending practices and provides an institutional framework for credit transactions.
54	False	Poor households may face difficulties because of collateral, documentation, income or repayment-capacity requirements.
55	True	When affordable formal credit is accessible, borrowers have an alternative to moneylenders and other informal lenders.
56	True	Banks operate within the formal financial system and are subject to institutional and regulatory requirements.

Topic 9 — Informal Sources of Credit

Q	Answer	Detailed Explanation
57	True	Moneylenders are a common example of informal credit providers.
58	False	Informal lenders generally do not face the same regulatory supervision as formal institutions such as banks.
59	True	Informal lenders may provide loans quickly because they can involve fewer documents and procedures.
60	False	Easy access does not mean low cost. Informal loans may carry very high interest rates.
61	True	Informal credit can come from several sources, including moneylenders, traders, employers, relatives and friends.
62	True	High interest rates increase the amount that borrowers must repay and can create financial stress.
63	True	Convenience should not be the only consideration. Borrowers must examine interest rates and repayment conditions.

Topic 10 — Formal vs Informal Sources of Credit

Q	Answer	Detailed Explanation
64	True	Formal credit is generally regulated through established institutions and rules, while informal credit is less regulated.
65	False	Speed is only one factor. Informal credit can be expensive and may impose unfavourable conditions.
66	True	Formal lenders may require documentation or collateral, which can create access barriers for some borrowers.
67	False	The two sources differ in many ways, including regulation, interest rates, collateral and repayment conditions.
68	True	A sensible borrower should compare the complete terms of credit rather than focusing on only one feature.
69	True	Regulation, interest rates and other terms can vary significantly between formal and informal sources.
70	True	Wider access to formal credit can give borrowers alternatives and reduce dependence on potentially exploitative lenders.

Topic 11 — Credit in Rural Areas and Debt Trap

Q	Answer	Detailed Explanation
71	True	Farmers often require credit to purchase inputs such as seeds, fertilisers and other production requirements.
72	False	Even productive loans can become difficult to repay because crop failure, weather, prices and other risks can reduce income.
73	True	Crop failure can sharply reduce agricultural income and therefore make loan repayment difficult.
74	True	Repeatedly borrowing to repay previous loans is a common mechanism through which a borrower can enter a debt trap.
75	True	High interest increases the total repayment burden and can worsen existing financial difficulties.
76	False	Rural households may borrow for agriculture, medical expenses, marriages, emergencies and other consumption needs.
77	True	Affordable formal credit can reduce the need to depend on high-interest informal lenders.

Topic 12 — Self-Help Groups

Q	Answer	Detailed Explanation
78	True	Members generally save small amounts regularly, creating a common fund that can support group lending.
79	False	SHGs are particularly useful for poor and small borrowers who may have difficulty accessing formal credit individually.
80	True	Pooled savings can be used to provide small loans to members according to the group’s rules.
81	True	Cooperation, trust and collective responsibility are important for the successful functioning of an SHG.
82	False	SHGs can be linked with banks and can help members access formal credit.
83	True	SHGs can provide an alternative source of affordable credit and thereby reduce dependence on moneylenders.
84	True	Members may use SHG loans for small businesses, livestock, agriculture and other income-generating activities.