What does the term “double coincidence of wants” refer to?
a) The need for a common currency
b) Two parties needing each other’s goods at the same time
c) The use of modern banking systems
d) The presence of collateral in credit arrangements
Answer: b) Two parties needing each other’s goods at the same time

How does money solve the problem of double coincidence of wants?
a) By simplifying barter systems
b) By acting as a medium of exchange
c) By eliminating the need for goods
d) By creating a system of collateral
Answer: b) By acting as a medium of exchange

What was commonly used as money in ancient India before coins?
a) Paper notes
b) Grains and cattle
c) Gold and silver
d) Bank deposits
Answer: b) Grains and cattle

What ensures the acceptance of modern currency as a medium of exchange?
a) Its inherent value
b) Its backing by precious metals
c) Government authorization
d) Availability of demand deposits
Answer: c) Government authorization

Who issues currency notes in India?
a) Central Government
b) Reserve Bank of India
c) Commercial Banks
d) Ministry of Finance
Answer: b) Reserve Bank of India

What are demand deposits?
a) Fixed deposits with banks
b) Deposits that can be withdrawn on demand
c) Deposits used for buying currency
d) Loans taken from banks
Answer: b) Deposits that can be withdrawn on demand

What role do banks play in the modern economy?
a) Issuing currency notes
b) Mediating between depositors and borrowers
c) Printing paper money
d) Managing only public funds
Answer: b) Mediating between depositors and borrowers

How do banks generate income?
a) By issuing loans at higher interest rates than deposits
b) By printing currency
c) By charging customers for opening accounts
d) By selling government securities
Answer: a) By issuing loans at higher interest rates than deposits

What is collateral in a loan agreement?
a) A fixed deposit
b) An asset used as security for the loan
c) A currency reserve
d) An insurance policy
Answer: b) An asset used as security for the loan

What happens if a borrower cannot repay a loan secured by collateral?
a) The loan is written off
b) The lender confiscates the collateral
c) The government provides repayment
d) The borrower is granted an extension
Answer: b) The lender confiscates the collateral

Which of the following is an informal source of credit?
a) Commercial bank
b) Moneylender
c) Cooperative society
d) Government institution
Answer: b) Moneylender

Why is credit important for economic activities?
a) It provides currency for barter trade
b) It enables borrowing for productive investments
c) It increases currency in circulation
d) It reduces the role of banks
Answer: b) It enables borrowing for productive investments

Which of the following is NOT a feature of formal sources of credit?
a) Fixed interest rates
b) Regulation by authorities
c) Absence of collateral
d) Loan agreements
Answer: c) Absence of collateral

What is the main drawback of informal sources of credit?
a) Lower interest rates
b) Lack of collateral requirements
c) Exploitative high-interest rates
d) Regulation by the government
Answer: c) Exploitative high-interest rates

Which institution regulates banking activities in India?
a) Ministry of Finance
b) Reserve Bank of India
c) State Bank of India
d) Central Government
Answer: b) Reserve Bank of India

What type of loans do farmers often take for seasonal needs?
a) Long-term loans
b) Medium-term loans
c) Short-term loans
d) Industrial loans
Answer: c) Short-term loans

What is the primary purpose of credit cooperatives?
a) To exploit borrowers
b) To provide loans at reasonable interest rates
c) To charge higher interest than moneylenders
d) To issue currency notes
Answer: b) To provide loans at reasonable interest rates

Which of the following is an example of a formal source of credit?
a) Friends and relatives
b) Cooperative banks
c) Local shopkeepers
d) Village moneylenders
Answer: b) Cooperative banks

What does the term “terms of credit” include?
a) Principal amount, interest rate, collateral, and repayment schedule
b) Fixed amount for borrowing
c) Informal agreements only
d) Currency requirements
Answer: a) Principal amount, interest rate, collateral, and repayment schedule

What percentage of rural households in India depend on informal sources of credit?
a) 25%
b) 50%
c) 85%
d) 95%
Answer: b) 50%

Why are formal sources of credit preferred over informal sources?
a) They charge higher interest rates
b) They are regulated and transparent
c) They do not provide collateral options
d) They are easily available in rural areas
Answer: b) They are regulated and transparent

Which type of collateral is often used in rural areas for loans?
a) Property papers
b) Jewelry
c) Crops
d) Livestock
Answer: b) Jewelry

What is one main reason for the expansion of rural credit in India?
a) Growth of cooperative societies
b) Reduction in agricultural activities
c) Strict banking regulations
d) Decline in rural demand
Answer: a) Growth of cooperative societies

What is one advantage of self-help groups (SHGs)?
a) High-interest rates on loans
b) Easy access to loans without collateral
c) Dependence on moneylenders
d) Exclusion of women from participation
Answer: b) Easy access to loans without collateral

What do SHGs primarily aim to promote?
a) Employment in urban industries
b) Self-reliance among the poor
c) Higher interest rates on loans
d) Dependence on banks
Answer: b) Self-reliance among the poor

Which sector of the Indian economy requires the highest credit?
a) Agriculture
b) Manufacturing
c) Services
d) Real estate
Answer: a) Agriculture

How do banks use public deposits?
a) They store them without interest
b) They lend them to borrowers to earn interest
c) They distribute them among shareholders
d) They convert them into foreign currencies
Answer: b) They lend them to borrowers to earn interest

What does “credit-worthy” mean in terms of borrowing?
a) Borrowers with a strong financial background and ability to repay loans
b) Borrowers with no collateral
c) Borrowers who depend only on informal sources
d) Borrowers who default on loans
Answer: a) Borrowers with a strong financial background and ability to repay loans

Which of the following is an example of collateral?
a) A bank account
b) A house offered as security for a loan
c) A monthly income statement
d) A credit card
Answer: b) A house offered as security for a loan

What is a major challenge faced by rural borrowers in accessing formal credit?
a) High interest rates in formal institutions
b) Lack of collateral and documentation
c) Low demand for loans
d) Excessive regulation of informal credit
Answer: b) Lack of collateral and documentation

Which of the following is NOT a function of commercial banks?
a) Accepting deposits
b) Issuing loans
c) Printing currency notes
d) Offering demand deposits
Answer: c) Printing currency notes

Why is it important to regulate informal sources of credit?
a) To increase their profitability
b) To reduce exploitation through high interest rates
c) To discourage borrowing
d) To restrict rural credit access
Answer: b) To reduce exploitation through high interest rates

Which financial institution helps in regulating credit in the economy?
a) Cooperative societies
b) Reserve Bank of India
c) Commercial banks
d) Microfinance companies
Answer: b) Reserve Bank of India

How do moneylenders often exploit borrowers in rural areas?
a) By providing interest-free loans
b) By charging extremely high interest rates
c) By offering collateral-free credit
d) By giving subsidies to farmers
Answer: b) By charging extremely high interest rates

What is the full form of SHG?
a) State Housing Group
b) Self-Help Group
c) Social Health Group
d) Sustainable Housing Group
Answer: b) Self-Help Group

Why are SHGs encouraged in rural areas?
a) They charge high interest rates
b) They empower rural women and reduce dependency on moneylenders
c) They promote only industrial development
d) They discourage community participation
Answer: b) They empower rural women and reduce dependency on moneylenders

Which of the following is an example of formal credit?
a) Loan from a moneylender
b) Loan from a commercial bank
c) Borrowing from a friend
d) Borrowing from a shopkeeper
Answer: b) Loan from a commercial bank

What ensures public trust in banks?
a) Transparency and government regulation
b) Loans without collateral
c) High-interest rates for deposits
d) Lack of government intervention
Answer: a) Transparency and government regulation

Why do rural households often depend on informal sources of credit?
a) Easy accessibility and lack of documentation requirements
b) Low-interest rates
c) Regulation by government authorities
d) Loans with flexible repayment schedules
Answer: a) Easy accessibility and lack of documentation requirements

Which of the following is a primary characteristic of informal credit sources?
a) Government regulation
b) High interest rates and no formal agreements
c) Availability of detailed loan terms
d) Fixed interest rates across regions
Answer: b) High interest rates and no formal agreements

What is the main advantage of borrowing from formal sources of credit?
a) High-interest rates
b) Legal documentation and transparency
c) No collateral requirements
d) Minimal repayment obligations
Answer: b) Legal documentation and transparency

What is the main purpose of the Reserve Bank of India?
a) Print currency for public use
b) Regulate formal credit systems and control money supply
c) Provide loans to farmers
d) Promote informal lending practices
Answer: b) Regulate formal credit systems and control money supply

What happens in a debt-trap situation?
a) Borrowers repay loans on time
b) Borrowers fail to repay loans and take more loans to repay existing ones
c) Lenders provide interest-free loans
d) Borrowers are supported by government subsidies
Answer: b) Borrowers fail to repay loans and take more loans to repay existing ones

Which of the following is NOT part of the terms of credit?
a) Interest rate
b) Collateral
c) Repayment schedule
d) Loan duration flexibility
Answer: d) Loan duration flexibility

What is a key reason for promoting self-help groups?
a) To encourage dependence on moneylenders
b) To increase savings and provide collateral-free loans
c) To discourage community participation
d) To raise interest rates for rural borrowers
Answer: b) To increase savings and provide collateral-free loans

Which sector has the least access to formal credit in India?
a) Urban areas
b) Agricultural sector
c) Industrial sector
d) IT sector
Answer: b) Agricultural sector

What is the primary function of banks in the modern economy?
a) Printing money
b) Storing valuables
c) Accepting deposits and giving loans
d) Providing government funds
Answer: c) Accepting deposits and giving loans

Which organization promotes SHGs for financial inclusion in India?
a) NABARD
b) Reserve Bank of India
c) Indian Railways
d) Ministry of Finance
Answer: a) NABARD

How do SHGs help women in rural areas?
a) By encouraging entrepreneurship and access to loans
b) By discouraging savings
c) By preventing community participation
d) By charging high-interest rates
Answer: a) By encouraging entrepreneurship and access to loans

Why is there a need to regulate informal credit sources?
a) To increase their profits
b) To ensure borrowers are not exploited
c) To promote their widespread use
d) To create more dependency on informal sources
Answer: b) To ensure borrowers are not exploited

Which source of credit is better regulated by laws?
a) Informal sources
b) Formal sources
c) Moneylenders
d) Shopkeepers
Answer: b) Formal sources

What is one major benefit of demand deposits?
a) They act as a form of cashless money
b) They are loans from banks
c) They have fixed maturity dates
d) They are free from documentation
Answer: a) They act as a form of cashless money

What happens if SHG members default on their loan repayments?
a) They lose their collateral
b) They are supported by the group in repaying loans
c) They face immediate legal action
d) They are excluded from the group
Answer: b) They are supported by the group in repaying loans

What is the role of the Reserve Bank of India in credit systems?
a) Issue credit cards
b) Supervise the functioning of commercial banks
c) Provide informal loans to farmers
d) Manage rural self-help groups
Answer: b) Supervise the functioning of commercial banks

What does the term “formal credit” imply?
a) Loans with no documentation
b) Loans provided by regulated institutions like banks
c) Loans only for agricultural purposes
d) High-interest loans from informal sources
Answer: b) Loans provided by regulated institutions like banks

Which type of loan requires collateral?
a) Personal loans from friends
b) Formal loans from banks
c) Borrowing from moneylenders
d) Loans from SHGs
Answer: b) Formal loans from banks

Which source of credit often leads to exploitation of borrowers?
a) Cooperative banks
b) Moneylenders
c) Commercial banks
d) Government loans
Answer: b) Moneylenders

What is the key feature of collateral-free loans in SHGs?
a) High-interest rates
b) Group responsibility ensures repayment
c) Dependence on informal sources
d) Lack of savings requirements
Answer: b) Group responsibility ensures repayment

How does microfinance help rural households?
a) By providing high-interest loans
b) By offering small loans without collateral
c) By encouraging dependency on moneylenders
d) By limiting savings
Answer: b) By offering small loans without collateral

Why are informal sources of credit still popular in rural areas?
a) They charge lower interest rates
b) They are easier to access and require no documentation
c) They are regulated by the government
d) They provide long-term loans
Answer: b) They are easier to access and require no documentation

Which institution is responsible for issuing currency in India?
a) State Bank of India
b) Reserve Bank of India
c) Commercial banks
d) Ministry of Finance
Answer: b) Reserve Bank of India

What happens to the collateral if a borrower defaults on a formal loan?
a) The collateral is seized by the lender
b) The borrower gets an extension
c) The loan is forgiven
d) The collateral is returned
Answer: a) The collateral is seized by the lender

Which of the following provides low-interest loans to its members?
a) Moneylenders
b) Cooperative societies
c) Informal credit sources
d) Local traders
Answer: b) Cooperative societies

What is the main source of income for banks?
a) Profits from informal credit
b) Higher interest rates on loans than on deposits
c) Government subsidies
d) Donations from international agencies
Answer: b) Higher interest rates on loans than on deposits

How do demand deposits contribute to economic activities?
a) They promote cashless transactions
b) They reduce the need for loans
c) They create barriers to credit access
d) They replace formal sources of credit
Answer: a) They promote cashless transactions

Which of the following is NOT a formal source of credit?
a) Banks
b) SHGs
c) Moneylenders
d) Cooperative societies
Answer: c) Moneylenders

Which sector often depends on microfinance for development?
a) Agriculture
b) Manufacturing
c) IT and services
d) Heavy industries
Answer: a) Agriculture

Why is the interest rate on formal credit lower than informal credit?
a) Government regulation and low-risk assessment
b) Dependence on collateral-free lending
c) Lack of loan agreements
d) No documentation requirements
Answer: a) Government regulation and low-risk assessment

How do SHGs promote savings?
a) By encouraging group contributions
b) By reducing income opportunities
c) By discouraging rural employment
d) By increasing dependence on informal credit
Answer: a) By encouraging group contributions

What is the advantage of banks over informal credit sources?
a) Higher loan amounts with no collateral
b) Regulation and transparency in loan agreements
c) Quick access without documentation
d) Loans with no repayment requirements
Answer: b) Regulation and transparency in loan agreements

What is one of the primary reasons for the lack of access to formal credit in rural areas?
a) High-interest rates
b) Lack of collateral and proper documentation
c) Excessive government regulation
d) Poor demand for loans
Answer: b) Lack of collateral and proper documentation

Why is microfinance considered important in rural development?
a) It promotes moneylenders’ activities
b) It offers small loans without collateral
c) It depends solely on government funding
d) It charges high-interest rates
Answer: b) It offers small loans without collateral

Which institution supports self-help groups in rural areas?
a) NABARD
b) Reserve Bank of India
c) Ministry of Urban Development
d) Indian Railways
Answer: a) NABARD

Which type of credit source typically charges the highest interest rates?
a) Commercial banks
b) Moneylenders
c) Cooperative banks
d) Government loans
Answer: b) Moneylenders

What is the main feature of loans provided by self-help groups (SHGs)?
a) High collateral requirements
b) Group-based lending without collateral
c) Dependence on moneylenders for repayment
d) Lack of savings contributions
Answer: b) Group-based lending without collateral

Which type of asset is commonly used as collateral for rural loans?
a) Livestock and jewelry
b) Shares in companies
c) Government bonds
d) Personal credit cards
Answer: a) Livestock and jewelry

How do formal financial institutions determine the creditworthiness of a borrower?
a) Based on the borrower’s collateral and repayment capacity
b) By charging high-interest rates
c) By consulting informal credit sources
d) By avoiding rural borrowers
Answer: a) Based on the borrower’s collateral and repayment capacity

What is the primary purpose of the Reserve Bank of India in the credit system?
a) Providing loans to farmers
b) Regulating the money supply and credit system
c) Collecting taxes from banks
d) Issuing informal loans to rural areas
Answer: b) Regulating the money supply and credit system

Which of the following is an example of an informal credit source?
a) Cooperative society
b) Moneylender
c) Commercial bank
d) NABARD
Answer: b) Moneylender

Why do SHGs encourage women’s participation?
a) To provide opportunities for saving and financial independence
b) To increase dependency on banks
c) To exclude male participation in rural loans
d) To reduce group-based accountability
Answer: a) To provide opportunities for saving and financial independence

Which sector in India has the highest dependence on informal credit?
a) Agriculture
b) Real estate
c) IT and services
d) Manufacturing
Answer: a) Agriculture

What does the term “credit” mean in economics?
a) Borrowing money with no obligation to repay
b) An agreement where a borrower takes money and repays it later
c) Direct exchange of goods without money
d) Lending money with no interest
Answer: b) An agreement where a borrower takes money and repays it later

Why do informal credit sources dominate in rural areas?
a) Lack of formal institutions and easier access to moneylenders
b) High collateral requirements by banks
c) Support from the Reserve Bank of India
d) Dependence on government subsidies
Answer: a) Lack of formal institutions and easier access to moneylenders

How do demand deposits differ from fixed deposits?
a) Demand deposits can be withdrawn anytime
b) Demand deposits earn higher interest rates
c) Fixed deposits are regulated by informal sources
d) Fixed deposits offer no interest income
Answer: a) Demand deposits can be withdrawn anytime

Which of the following does NOT require collateral?
a) Loan from a self-help group
b) Loan from a commercial bank
c) Loan from a moneylender
d) Loan from a cooperative bank
Answer: a) Loan from a self-help group

What is the main aim of microfinance programs?
a) To provide long-term industrial loans
b) To offer small loans to the poor without collateral
c) To promote only urban businesses
d) To charge high-interest rates on loans
Answer: b) To offer small loans to the poor without collateral

Why do moneylenders dominate rural credit systems?
a) They are easy to approach and require no formal documentation
b) They offer loans at low-interest rates
c) They provide government-regulated credit
d) They encourage community participation
Answer: a) They are easy to approach and require no formal documentation

What is the major function of cooperative societies in credit systems?
a) Provide loans at reasonable interest rates to their members
b) Charge high-interest rates
c) Offer informal credit
d) Focus only on industrial loans
Answer: a) Provide loans at reasonable interest rates to their members

Which of the following is an example of collateral?
a) Monthly salary
b) Land or property offered as security for a loan
c) A promise to repay the loan
d) A borrower’s credit history
Answer: b) Land or property offered as security for a loan

What is one of the drawbacks of borrowing from informal credit sources?
a) Lack of collateral requirements
b) Exploitative interest rates
c) Legal protection for borrowers
d) Transparent loan terms
Answer: b) Exploitative interest rates

What is the main source of credit for SHG members?
a) Government loans
b) Contributions from group members
c) High-interest loans from banks
d) Loans from moneylenders
Answer: b) Contributions from group members

Why are banks hesitant to lend to small farmers in rural areas?
a) High administrative costs and risks involved
b) Lack of demand for loans
c) Dependence on informal credit
d) Government restrictions on rural lending
Answer: a) High administrative costs and risks involved

What ensures transparency in formal credit systems?
a) Legal agreements, collateral requirements, and regulation
b) High-interest rates on loans
c) Absence of documentation
d) Dependence on moneylenders
Answer: a) Legal agreements, collateral requirements, and regulation

How do self-help groups promote financial literacy?
a) By organizing training and savings programs for members
b) By discouraging banking practices
c) By offering collateral-free loans only
d) By providing government funding without accountability
Answer: a) By organizing training and savings programs for members

What is one major issue with informal credit?
a) Availability in rural areas
b) Lack of documentation and legal agreements
c) High savings requirements
d) Dependence on foreign banks
Answer: b) Lack of documentation and legal agreements

Which of the following ensures borrowers are not exploited by informal credit?
a) Regulation of interest rates
b) Dependence on moneylenders
c) Loans without repayment schedules
d) Lack of government policies
Answer: a) Regulation of interest rates

What is the primary purpose of collateral in a loan agreement?
a) To ensure security for the lender in case of default
b) To increase the loan interest rate
c) To promote rural employment
d) To avoid legal documentation
Answer: a) To ensure security for the lender in case of default

What happens when a self-help group member defaults on a loan?
a) The group collectively takes responsibility for repayment
b) The member is excluded from the group
c) The loan is written off
d) No action is taken
Answer: a) The group collectively takes responsibility for repayment

Why are loans from commercial banks considered safer than informal loans?
a) They are government-regulated and have lower interest rates
b) They are available without repayment conditions
c) They do not require documentation
d) They allow unrestricted borrowing
Answer: a) They are government-regulated and have lower interest rates

What is the main focus of NABARD?
a) Regulating moneylenders in rural areas
b) Promoting rural credit and self-help groups
c) Providing urban employment opportunities
d) Managing national currency reserves
Answer: b) Promoting rural credit and self-help groups