Money And Credit Class 10 Notes Economics Chapter 3

What are Money and Credit?


  • Barter system involves the mutual exchange of goods for the satisfaction of mutual wants.
  • Barter system contains the difficulty of double coincidence of wants.
  • The difficulties of barter system led to the evolution of money.

Credit in india

A large part of the poor section of the society has to resort to the informal sources of credit because formal sources of credit involve the difficulty of procedural formalities which the poor sections of the society generally fail to meet. While the informal sources of credit give them ease of access.

But these informal sources charge a very high rate of interest which leads to very less income left in the hands of the borrower which may generally result into a debt trap for such borrowers.

Only the expansion of formal sources of credit may safeguard the weaker sections of the society from their exploitation in the hands of informal sources of credit.

  • 1. Barter System : It is a system of transaction in which goods are mutually exchanged for the fulfillment of needs between two persons.
  • 2. Double Coincidence of Wants : It is a situation of barter system in which both the parties agree to exchange mutually possessed goods for the fulfillment of their requirements.
  • 3. Money : It is anything which is generally acceptable as a medium of exchange. The modern forms of money include currency, coins and demand deposits.
  • 4. Bank : An institution which accepts deposits from the people who have surplus funds and extends credit to those borrowers who need the funds for the fulfillment of various requirements.
  • 5. Demand Deposits : These are the bank deposits which can be withdrawn at the demand of the depositors through cheque.
  • 6. Cheque : A cheque is a credit instrument through which the depositors instruct the bank to pay a specific amount from the depositor’s account to the person in whose name the cheque has been issued.
  • 7. Credit or Loan : Credit (loan) refers to an agreement between a lender and borrower in which the lender supplies the borrower money, goods or services
  • with the promise of borrower for future payment.
  • 8. Borrower : A borrower is a person or an institution that receives money from a lender with the agreement to pay it back within a specified period of time.
  • 9. Creditor : A creditor is a person or an institution who lends the funds to the borrowers.
  • 10. Debt trap : It is a situation in which the payment of debt becomes more than the income of the borrower. So, he has to take more debts to expedite the previously-secured debt.
  • 11. Collateral : Collateral refers to an asset that the borrower owns and mortgages this asset as a guarantee to the lender until the loan is repaid.
  • 12. Terms of Credit : Agreement regarding interest rate, collateral and documentation requirement and the mode of repayment etc. together constitute the “Terms of Credit”.
  • 13. Informal Sources of Credit : The informal sources include moneylenders, traders, employers, relatives and friends, etc.
  • 14. Formal Sources of Credit : The formal sources of credit include banks and cooperatives.