Lesson Plan – Senior Department
Class: 10
Subject: Social Science (Economics)
Chapter: Money and Credit
Topic: Modern forms of money, loan activities of bank
Content
Modern forms of Money
● Before the introduction of coins, a variety of objects was used as money. For example,
grains and cattle
● Thereafter came the use of metallic coins — gold, silver, copper coins — a phase
which continued well into the last century.
● Currency
o Modern forms of money include currency — paper notes and coins.
o Unlike the things that were used as money earlier, modern currency is not
made of precious metal such as gold, silver and copper.
o And unlike grain and cattle, they are neither of everyday use.
o The modern currency is without any use of its own.
Why is it accepted as a medium of exchange?
It is accepted as a medium of exchange because the currency is authorised by the
government of the country. In India, the Reserve Bank of India issues currency notes on
behalf of the central government. As per Indian law, no other individual or organisation is
allowed to issue currency. Moreover, the law legalises the use of rupee as a medium of
payment that cannot be refused in settling transactions in India. No individual in India can
legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of
exchange.
● Deposits with Banks
o The other form in which people hold money is as deposits with banks.
o At a point of time, people need only some currency for their day-to-day needs.
Any excess cash is deposited with the banks by opening a bank account in
their name. Banks accept the deposits and also pay an amount as interest on
the deposits. In this way people’s money is safe with the banks and it earns an
amount as interest. People also have the provision to withdraw the money as
and when they require. Since the deposits in the bank accounts can be
withdrawn on demand, these deposits are called demand deposits.
o Demand deposits offer facility of cheques. For payment through cheque, the
payer who has an account with the bank, makes out a cheque for a specific
amount.
o A cheque is a paper instructing the bank to pay a specific amount from the
person’s account to the person in whose name the cheque has been issued.
o The facility of cheques against demand deposits makes it possible to directly
settle payments without the use of cash. Since demand deposits are accepted
widely as a means of payment, along with currency, they constitute money in
the modern economy.
The modern forms of money — currency and deposits — are closely linked to the working of
the modern banking system.
Loan Activities of banks
Q: What do the banks do with the deposits which they accept from the public?
a) Banks keep only a small proportion of their deposits as cash with themselves.
b) For example, banks in India these days hold about 15 per cent of their deposits as
cash.
c) This is kept as provision to pay the depositors who might come to withdraw money
from the bank on any given day.
d) Since, on any particular day, only some of its many depositors come to withdraw
cash, the bank is able to manage with this cash.
e) Banks use the major portion of the deposits to extend loans. Banks make use of the
deposits to meet the loan requirements of the people.
f) In this way, banks mediate between those who have surplus funds (the depositors)
and those who are in need of these funds (the borrowers).
g) Banks charge a higher interest rate on loans than what they offer on deposits. The
difference between what is charged from borrowers and what is paid to depositors is
their main source of income.
Online resources: [Link]
Assignment Questions:
a) What was used as money before currency notes and coins?
b) Think of some precautions one might have to keep in mind while using a cheque.
