CBSE Class 10 Social Science Economics Chapter 3 Money and Credit Notes

The Money and Credit Class 10 chapter is an important part of the CBSE Class 10 Social Science Economics syllabus. It helps students understand how money plays a vital role in our everyday lives and in the functioning of an economy. Before the use of money, people followed the barter system, where goods were exchanged directly. This system had many problems, such as finding someone who wanted to trade what you had. The Money and Credit Class 10 Notes explain how the invention of money solved this issue by acting as a medium of exchange, making buying and selling much easier.

In the Class 10th Money and Credit Notes, students learn about the modern forms of money, including currency, bank deposits, and digital payments. The Money and Credit Notes Class 10 describe how the banking system works—how banks accept deposits, give loans, and help in the development of the economy. The chapter also teaches about credit, which means borrowing money with a promise to repay later. Through real-life examples, the Money and Credit Class 10 Question and Answers show how credit can be both helpful and harmful depending on the situation.

The Notes of Chapter Money and Credit Class 10 also highlight the difference between formal and informal sources of credit. Banks and cooperatives are formal sources supervised by the Reserve Bank of India (RBI), while moneylenders and traders form the informal sector. Students can use the Money and Credit Class 10 PDF to study these topics quickly before exams. 

Overall, the Money and Credit Class 10 Notes help students understand the importance of money, how credit supports economic activities, and why access to affordable credit is essential for development.

Do Check: Money and Credit Class 10 MCQs

Class 10 Chapter 3 Notes Economics Notes PDF 

Money and Credit Class 10 notes PDF explains the role of money in modern economic life and how it replaced the barter system. It describes how money functions as a medium of exchange, helping people buy and sell goods conveniently. The chapter discusses modern forms of money such as currency, bank deposits, and digital transactions. It also explains how banks work, including accepting deposits and giving loans. 

Students learn about credit—its advantages and risks, as well as the difference between formal and informal sources of credit. The role of the Reserve Bank of India (RBI) in regulating the financial system and the importance of Self Help Groups (SHGs) in supporting rural and poor communities are also covered. These notes help students understand the structure of India’s banking and credit system and prepare effectively for board exams.

Money and Credit Class 10 Notes

Money as a Medium of Exchange

Money is called a medium of exchange because it helps people buy and sell goods and services easily. Anyone who has money can use it to purchase what they need without finding someone who wants to trade directly.

Double Coincidence of Wants

In the barter system, trade happens only when both parties want each other’s goods or services at the same time. This situation is known as the double coincidence of wants. Money removes this problem by providing a common medium that everyone accepts.

Modern Forms of Money

From Barter to Coins and Currency

In ancient India, people used grains, animals, and metals like gold, silver, and copper as money. Later, paper notes and coins became the main forms of currency. Today, both currency and bank deposits form the basis of the modern monetary system.

Currency

The Reserve Bank of India (RBI) issues all currency notes in India on behalf of the central government. No individual or organization can print money. The Indian rupee is accepted everywhere in the country as a medium of exchange.

Deposits in Banks

People keep their money in bank accounts for safety and to earn interest. Banks accept deposits and allow people to withdraw money when needed. Deposits that can be withdrawn anytime are called demand deposits. Payments can also be made through cheques, which are written instructions to transfer money from one account to another.

Loan Activities of Banks

Banks keep only a small part of total deposits (around 15%) as cash to meet daily withdrawals. The rest is given as loans to individuals and businesses. Banks charge higher interest on loans than they pay on deposits. The difference in interest is the main source of income for banks.

Two Different Credit Situations

Credit means borrowing money, goods, or services with a promise to repay later. Credit can help or harm a person depending on how it is used.

1. Positive Credit Situation
   A person borrows money for production, earns profit, and repays the loan easily. This improves their financial condition.
2. Negative Credit Situation
   A person borrows for production but faces a loss (like crop failure) and cannot repay the loan. This can lead to debt and financial trouble.

Terms of Credit

Every loan has certain conditions known as the terms of credit, which include:

• Interest Rate: Extra amount paid on the borrowed money.
• Collateral: Property or asset offered as security for the loan (like land, a vehicle, or savings).
• Repayment Conditions: Time and method of repayment.

If the borrower fails to repay, the lender can sell the collateral to recover the money.

Do Check: NCERT Solutions for Class 10 Social Science Economics

Formal and Informal Credit

Formal Credit

Formal loans come from banks and cooperatives. These are supervised by the Reserve Bank of India, which ensures fair interest rates and proper lending practices. Banks must report their lending details to the RBI.

Informal Credit

Informal loans are taken from moneylenders, traders, employers, relatives, or friends. There is no authority to regulate these lenders, so they often charge very high interest rates and may use unfair means to recover money.

Formal Sector Credit in India

Formal sector credit includes loans provided by regulated financial institutions like banks and Non-Banking Financial Companies (NBFCs). These loans are monitored by the RBI to maintain financial stability.

Key Aspects

1. Bank Credit: Banks give loans for various purposes like business, housing, or education.
2. NBFCs: These offer financial services to those who may not qualify for bank loans, especially small and medium enterprises.
3. Priority Sector Lending: Banks must lend a fixed portion of their funds to sectors like agriculture, small industries, and education.
4. Government Schemes: Programs such as PMJDY, Mudra Yojana, and Stand-Up India help promote financial inclusion.

Self Help Groups (SHGs)

Purpose

Many poor families depend on informal credit because:

• Banks are not easily available in villages.
• Getting bank loans requires documents and collateral.

To solve this, Self Help Groups (SHGs) were formed. These are small groups of 15–20 members from the same community who save money regularly and give loans to each other when needed.

Advantages of SHGs

• Provide loans without collateral.
• Offer timely and low-interest credit.
• Encourage savings and self-reliance, especially among women.
• Serve as a platform to discuss issues like health, education, and domestic violence.
• Help improve the overall financial and social status of members.

Do Check: Class 10 Social Science Syllabus

Money and Credit Class 10 Question and Answers

Ques 1. What is money? Why is it called a medium of exchange?

Answer: Money is anything that is generally accepted as a means of payment for goods and services. It allows people to trade easily without the need for direct barter.

It is called a medium of exchange because it helps buyers and sellers exchange goods and services conveniently. A person holding money can buy whatever they need, eliminating the problem of the double coincidence of wants that existed in the barter system.

Ques 2. What are the modern forms of money?

Answer: Modern forms of money include currency and deposits in banks.

1. Currency: Paper notes and coins issued by the Reserve Bank of India (RBI) on behalf of the central government. No one else is allowed to issue currency in India. The Indian Rupee is the legal tender and is accepted for all transactions.
2. Bank Deposits: People deposit their extra cash in banks and earn interest on it. These deposits can be withdrawn anytime using cheques or ATM cards. Such deposits are known as demand deposits.

Ques 3. Explain the loan activities of banks.

Answer: Banks accept deposits from people and keep only a small portion (around 15%) as cash to meet withdrawal demands. The remaining amount is used to give loans to individuals and businesses.

Banks charge a higher interest rate on loans than what they pay on deposits. The difference between these two rates is the bank’s main source of income. By providing loans, banks help promote investment, production, and employment in the economy.

Ques 4. What do you understand by credit? Explain with examples of two different credit situations.

Answer: Credit (loan) is an agreement where the lender provides money, goods, or services to the borrower with a promise of repayment in the future.

Situation 1 – Helpful Credit:
A small trader borrows money to expand production. He earns a profit and easily repays the loan. His income increases, so credit benefits him.

Situation 2 – Harmful Credit:
A farmer takes a loan for crop production, but the crop fails due to drought. He cannot repay the loan and falls into a debt trap, making his financial condition worse.

Thus, credit can improve or worsen a person’s condition depending on how it is used.

Do Check: Class 10 Social Science Sample Papers

Ques 5. What are the terms of credit?

Answer: Every loan agreement includes certain conditions known as the terms of credit, which specify:

1. Interest Rate: The cost of borrowing money, which the borrower must pay along with the principal.
2. Collateral (Security): An asset pledged by the borrower as a guarantee for repayment. It can be land, a building, a vehicle, or bank deposits.
3. Documentation Requirements: Legal papers required to ensure the loan agreement is valid.
4. Mode of Repayment: The schedule and method through which the borrower repays the loan.

The terms of credit vary depending on the lender and the borrower.

Ques 6. Distinguish between formal and informal sources of credit.

Answer:

Ques 7. What is the role of the Reserve Bank of India (RBI) in credit control?

Answer: The RBI is the central bank of India that controls and regulates the functioning of all banks and financial institutions.

Functions related to credit control:

1. Issues currency notes on behalf of the government.
2. Monitors banks to ensure they maintain minimum cash reserves.
3. Regulates interest rates and lending policies.
4. Ensures fair lending, so banks provide loans to all sectors, including farmers and small industries.

By doing this, the RBI ensures the stability and proper functioning of India’s financial system.

Ques 8. What are Self Help Groups (SHGs)? How do they help poor people?

Answer: Self Help Groups (SHGs) are small groups of 15–20 poor people, mostly from the same community, who pool small savings and give loans to each other.

Functions and Benefits:

1. Help members save regularly.
2. Provide small loans without collateral at reasonable interest rates.
3. Empower women and make them financially independent.
4. Encourage mutual help and decision-making.
5. Serve as platforms to discuss social issues like health, education, and domestic violence.

SHGs play a key role in reducing dependence on moneylenders and promoting financial inclusion.

Ques 9. What are the advantages of formal credit for development?

Answer: Formal credit plays a vital role in promoting economic development by:

1. Providing cheap and reliable loans for farmers, entrepreneurs, and small businesses.
2. Reducing dependence on moneylenders and preventing debt traps.
3. Encouraging investment and production, which increases employment.
4. Helping the government track credit flow and maintain financial stability.

When formal credit reaches more people, it supports inclusive and sustainable growth.

Do Check: Class 10 Social Science Economics Important Questions

Ques 10. Why do poor households still depend on informal sources of credit?

Answer: Poor people often rely on informal lenders because:

1. Banks are not easily available in rural areas.
2. They lack collateral and documents needed for bank loans.
3. Informal lenders like moneylenders or traders provide quick loans without paperwork.
4. Borrowers can repay informally, sometimes through goods or labor.

However, informal loans charge very high interest rates, often leading to poverty and debt. Expanding formal credit through SHGs and rural banks can solve this problem.