Why do lenders ask for collateral while lending?

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Chapter 3

NCERT

Class 10

Economics

Solutions

3. Why do lenders ask for collateral while lending?

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Question:

Why do lenders ask for collateral while lending?

Answer:

At the time of lending, the lender asks for collateral or (guarantee) as security in return for the loan. He does this because in case the borrower fails to return the loan, the lender has the right to sell the collateral to get the payment.

More NCERT Questions

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(All Q's of this Chapter solved)

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The following table shows people in a variety of occupations in urban areas. What are the purposes for which the following people might need loans? Fill in the column.

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Choose the most appropriate answer. (i) In a SHG most of the decisions regarding savings and loan activities are taken by

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Fill in the blanks: (i) Majority of the credit needs of the _________________households are met from informal sources.

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In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.

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Manav needs a loan to set up a small business. On what basis will Manav decide whether to borrow from the bank or the moneylender? Discuss.

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Analyze the role of credit for development.

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In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

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What are the reasons why the banks might not be willing to lend to certain borrowers?

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What is the basic idea behind the SHGs for the poor? Explain in your own words.

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Why do we need to expand formal sources of credit in India?

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Look at a 10 rupee note. What is written on top? Can you explain this statement?

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How do banks mediate between those who have surplus money and those who need money?

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How does money solve the problem of double coincidence of wants? Explain with an example of your own.

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In situations with high risks, credit might create further problems for the borrower. Explain.

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Why do you think that the share of formal sector credit is higher for the richer households compared to the poorer households?

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Should there be a supervisor, such as the Reserve Bank of India, that looks into the loan activities of informal lenders? Why would its task be quite difficult?

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Why should credit at reasonable rates be available for all?

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What are the differences between formal and informal sources of credit?

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Tick the correct answer. (i) Over the years, Rama’s debt (a) will rise.

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Can everyone in Sonpur get credit at a cheap rate? Who are the people who can?

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Why will Arun have a higher income from cultivation compared to Shyamal?

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Compare the terms of credit for the small farmer, the medium farmer and the landless agricultural worker in Sonpur.

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Underline the various uses of credit in Sonpur in the above passages.

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List the various sources of credit in Sonpur.

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Fill in the blanks choosing the correct option from the brackets. While taking a loan, borrowers look for easy terms of credit.

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Given that a large number of people in our country are poor, does it in any way affect their capacity to borrow?

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What are the reasons that make Swapna’s situation so risky? Discuss factors – pesticides; role of moneylenders; climate.

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Supposing Salim continues to get orders from traders. What would be his position after 6 years?

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Fill the following table : Why did they need credit?

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What do you think would happen if all the depositors went to ask for their money at the same time?

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Why are demand deposits considered as money?

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Tick the correct answer. After the transaction between Salim and Prem, (i) Salim’s balance in his bank account increases, and Prem’s balance increases.

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M. Salim wants to withdraw Rs 20,000 in cash for making payments. How would he write a cheque to withdraw money?

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Let us Try and Understand How Cheque payments are made and Realised with an example.

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Can you think of some examples of goods / services being exchanged or wages being paid through barter?

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How does the use of money make it easier to exchange things?

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