MONEY AND CREDIT

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Money and Credit PowerPoint Presentation :

Money and Credit PowerPoint P resentation By Pulkit Aggarwal Class- 10 th F Roll no- 32

What is money?:

What is money? Before the development of a medium of exchange, people would barter to obtain the goods and services they needed. This is basically how it worked: two individuals each possessing a commodity the other wanted or needed would enter into an agreement to trade their goods. This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient. For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you apple? To get your meat, he or she must find someone who has bananas and wants apple.

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The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient. But that is not where the problems end: even if you find someone with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow and determine how many bananas you are willing to take for certain parts of your cow. To solve these problems came commodity money, which is a kind of currency based on the value of an underlying commodity. Money act as an intermediate in the exchange process. Currency is authorized by the government as medium of exchange.

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MONEY AS A MEDIUM OF EXCHANGE The use of money spans a large part of our everyday life. In transactions, goods are being bought and sold with use of money. In some transactions, services are being exchanged with money. When both parties have to agree to sell and buy each others commodities this is known as Double coincidence of wants. In contract, in an economy where money is in use, money by providing the crucial intermediate step eliminates the need for double coincidence of wants. Once he has exchanged his goods for money, he can purchase other goods in market. Since money as an intermediate in the exchange process. It is called a medium of exchange.

Modern Forms of Money:

Modern Forms of Money Before the introduction coins, a variety of objects was used as money. For example, since the very early ages, Indians used grains and cattle as money. Thereafter came the use of metallic coins.

Currency:

Currency Modern forms of money is include currency- including paper notes and coins. The modern currency is without its own use. In India, the reserve bank of India issues currency notes on behalf of the central government. In India rupee widely accepted as a medium of exchange. It is accepted as a medium of exchange because the currency is authorized by the government of the country. No other individual or organisation is allowed to issue currency.

Deposits with Banks :

Deposits with Banks The other form in which people hold money is as deposits with banks. At a point of time, people need only some currency for their day-to-day needs. Banks accept the deposits and also pay an interest rate on the deposits. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. For payments payer can made a cheque if he has an account in bank . A cheque is a paper instructing the bank to pay a specific amount from the person’s account to person in whose name cheque has made. Thus, demand deposits share the essential features of money. The modern form of money- currency and deposits- are closely linked to the working of the modern banking system.

CHEQUE PAYMENTS:

CHEQUE PAYMENTS

Loan Activities Of Banks:

Loan Activities Of Banks these days bold about 15% of their deposits as Banks in India cash. -Kept as provision to pay the depositors who might come to withdraw money from the bank on any given day. -There is a huge demand for loans for various economic activities. -Banks mediate between those have surplus funds and those who are in need of these funds . - Banks charge a higher interest rate on loans than what they offer on deposits. - Bank use the major portion of the deposits to extend loans. - Difference between the interest rates is the main source of income for banks.

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LOAN ACTIVITIES OF BANKS There is an interesting mechanism at work here. Banks keep only a small proportion of their deposits as cash with themselves. Banks use the major portion of the deposit to extend loans. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

Credit:

Credit A large number of transactions in our day to day activities involve credit in some form or the other. CREDIT: It refers to an agreement in which lender supplies the borrowers with money, goods, services in return for the promise of future payments. Credit plays a vital and positive role as well as a negative role. Whether credit will be useful or not depends upon the risks in the situation & on whether there is some support, in case of loss. Credit—in its negative role—(debt-trap) In the rural areas the main demand for the credit is for the crop production. Crop production involves considerable cost on seeds, fertilizers, pesticides, water, electricity, repair of equipment etc.. Farmers usually take crop loans at the beginning of the season and repay loan after harvest.

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Repayment of the loan is dependent on the income from farming. At times repayment of the loan becomes difficult and credit instead of improving the earnings, pushes the borrower into a situation from which recovery is very difficult & painful . this situation is called DEBT TRAP Terms of Credit : - Interest rate - Collateral - documentation requirement. - the mode of repayment.

Formal Sectors:

-Loans from banks and co-operatives Functions of Reserve banks. - Issues currency notes on behalf of the central government. - RBI monitors the banks are actually maintaining cash balance. - RBI collect information from banks, how much they are lending to whom, at what interest rate etc. Formal Sectors

Informal Sector Loans:

Informal Sector Loans The informal lenders, traders, employers, relatives and friends etc. - There is no organization which supervise the credit activities of lenders. - They can lend at what ever interest rate they choose. - Their is no one to stop then from using unfair means to get their money back.

Self-Help Groups For The Poor:

Self-Help Groups For The Poor Banks are not present everywhere in rural India. Even they are, getting a loan from bank is much more difficult than taking a loan from the informal sources. In recent years, people have tried out some new ways of providing loans to the poor. SHG is one of them. A typical SHG has 15-20 members, usually belonging to one neighborhood, who meet and save regularly.

Thank you :

Thank you

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SUBMITTED TO ;- RUCHI VIJ (SST TEACHER)