Credit in the Financial System — Flashcards
Telangana Board · Class 9 · Social Studies
20 flashcards for Credit in the Financial System (Telangana Board Class 9 Social Studies) to test yourself on key terms and facts.
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What are demand deposits and why are they considered as money?
Answer
Demand deposits are bank deposits that can be withdrawn on demand by account holders. They are considered money because: 1) They can be withdrawn as cash anytime, 2) Payments can be made through chequ…
Credit
Answer
Credit (loan) refers to an agreement in which the lender supplies the borrower with money, goods, or services in return for the promise of future payment. It involves trust between lender and borrower…
How do banks use deposits to create loans, and what percentage do they keep as cash?
Answer
Banks keep only about 15% of their deposits as cash reserves to meet daily withdrawal demands. The remaining 85% is used to extend loans to borrowers. This works because only some depositors withdraw …
Collateral
Answer
Collateral is an asset that the borrower owns (such as land, building, vehicle, livestock, bank deposits) and uses as a guarantee to the lender until the loan is repaid. If the borrower fails to repay…
Why do people require credit in modern times compared to the past?
Answer
People need more credit today because: 1) Modern farming requires cash for seeds, fertilizers, pesticides, and hired workers, 2) Increased availability of consumer goods on credit (TVs, appliances), 3…
Analyze this scenario: Anil, a shoe manufacturer, takes credit to fulfill a festival order. What makes this credit arrangement positive?
Answer
Anil's credit arrangement is positive because: 1) He has a confirmed order (reduces risk), 2) The credit helps increase production capacity, 3) He earns more than the interest he pays, 4) He can repay…
Debt Trap
Answer
A debt trap is a situation where credit pushes the borrower into a cycle of debt from which recovery is very difficult. It occurs when the borrower cannot repay the original loan and has to take fresh…
What are the Terms of Credit?
Answer
Terms of Credit include: 1) Interest rate - the cost of borrowing, 2) Collateral - security against the loan, 3) Documentation requirements - papers needed for loan approval, 4) Mode of repayment - ho…
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