NCERT Class 10 Economics Chapter 3: Money and Credit (CRR, SLR & Repo Rate) YouTube Lecture Handouts

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NCERT Class 10 Economics Chapter 3: Money and Credit (CRR, SLR & Repo Rate)

Chapter 3: Money & Credit

Money Versus Barter

  • Barter System – Double coincidence of wants
  • Money – eliminates double coincidence of wants; Medium of EXCHANGE
Money Versus Barter for Economics

Forms of Money

  • Currency: Paper notes and coins – authorized by Govt. (India – RBI)
  • Deposit with Banks – to earn interest for extra money; demand deposit (withdrawn on demand) – Cheque rather than Cash
Forms of Money for Economics

Depositor vs. Borrower

  • Bank hold 15 % of total deposit as cash
  • B/w surplus & those who need
  • Extend loans
  • Higher interest rate on loan
  • Diff. = INCOME for bank
Depositor vs. Borrower for Economics

Credit (Loan) Situation

  • Lender supplies the borrower in return for promise of future payment
  • For industry, housing, crop production
  • Can push borrower in further credit (crop failure)

Terms of Credit

  • Interest + Principal = Repayment
  • Collateral: asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid
  • Interest rate + collateral + documentation + mode of repayment = Terms of Credit

Formal Sector Credit

  • Formal sector loan – bank & cooperative – 90 % rich household
  • Informal sector loan - moneylenders, traders, employers, relatives and friends – not supervised & charge any amount (usually higher) – 85 % poor households
  • Formal – Supervised by RBI – Looks into
    • Cash maintained by banks
    • Loan not only to profit making businesses but others
  • High borrowing cost implies most money goes in loan repayment
  • Need for cheap & affordable credit
  • 50 % rural credit needs by formal sector

Self-Help Groups

  • Organize rural poor in groups and collect money
  • Members take loan from group
  • Group charges interest
  • If group is regular in saving – can take bank loans
  • Loan given in name of group – self-employment opportunities
  • Overcome problem of collaterals
  • Grameen bank (Bangladesh) – 1970s – 6 million borrowers in 40,000 villages

Marginal Standing Facility – in Acute Shortage (Emergency Situation) – MSF Rate > Repo Rate

Lends Money

Repo Rate – Short term

Bank rate – Long term

Marginal Standing Facility for Economics

Cash Reserve Ratio (CRR) – Bank Hold Deposit as Cash with RBI

If CRR more – bank can use less for spending

Cash Reserve Ratio (CRR) for Economics
Repo Rates and Deposit Rates for Economics