Understanding Money, Risk, and Collateral in the Economy

10: Why were demand deposits considered as money?

Answer: Since demand deposits are accepted widely as a means of payment along with currency, they are also considered as money in the modern economy.

11: What would happen if all the depositors went to ask for their money at the same time?

Bank would not be able to give money to the depositors if they all went to ask for their money all at the same time. This is because, banks keep only about 15% and would have already used the balance portion of their deposits to extend loans.

12: What were the reasons that make Swapna’s situations so risky? Discuss factors: pesticides, role of money lenders, climate.

Pest attack, exploitation by money lenders, and lack of monsoon are the reasons that make Swapna’s situation so risky.

• Pesticides – Pest attack can be controlled by pesticides.
• Role of Moneylenders – Generally moneylenders exploit farmers. They charge very high rate of interest and keep them in debt-trap.
• Climate – Nearly 60% of our agricultural land area is still un-irrigated. Our farmers heavily depend on rainfall. So, climate plays a vital role in agriculture.

13: Why do lenders ask for collateral while lending?

Lenders ask for collateral as security against loans. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to recover the payment.