Money and CreditMeaning of Barter systemBarter System:- The direct exchange of economic goods and services with another goods without use of money is called as barter system. This is otherwise known as CC economy. Difficulties of Barter System: Lack of common measure valueLack of Double coincidence of wantsProblem of store of value Lack of divisibility of goodsMeaning of moneyAccording to prof. Crowther, “Money is a matter of functions fourA medium, a measure, a standard and a store”In addition to this another important function of money is transfer of value.Or Money- Money is anything which is generally accepted by common people as a medium of exchange. Use of Money as a medium of exchange has removed the major difficulty of double coincidence ofwants. Money is a major link between buyers and sellers. Money separates the act of sale & purchaseof goods and services. Thus money acts as a medium of exchange.

Modern Forms of MoneyModern forms of money include currency paper note and coins.It is accepted as a medium of exchange because the currency is authorized by the government of thecountry.In India the Reserved Bank of India issue currency notes on the behalf of the central government. Noother individual or organization is allowed to issue currency.The law legalizes the use of rupee as a medium of payment that cannot be refused in settlingtransaction in India. Hence the rupee is widely accepted as a medium of exchange.Cheques and Demand Drafts are Bank Money( Optional Money)Debit cards and Credit Cards are known as plastic money.Meaning of CurrencyCurrency is a modern form of money which consists of paper notes and coins. For example, Rupee. Dollar, Yen, Pound etc.

Deposit with BanksDemand Deposits: These are current account deposit with the commercial banks and other semi-govt.banks. These Deposits are as good as cash because depositors can withdraw it any time whenever theylike. Deposits in a bank which are payable on demand are called Demand Deposits.Time Deposits: Those deposits of commercial banks which are made for a fixed period of time varyingfrom 15 days and onwards.

Chequeable Deposits: Those Deposits against which cheques can be issued for withdrawing money anytime on demand are termed as Chequeable Deposits.Recurring Deposit: A specific amount is deposited at regular intervals. After end of the tenure the principal and the interest is paid to the depositor.

Meaning of Cheque - A Cheque is a paper instructing the bank to pay a specific amount from the person account to the person in whose name the cheque has been issued.The facility of Cheques against Demand Deposits makes it possible to directly settle payments withoutthe use of cash.Since Demand Deposits are accepted widely as a means of payments along with currency theyconstitute money in the modern economy.The modern forms of money-currency and deposits are closely linked to the working of the modernbanking system.

Loan Activities of BanksBasically banks borrow money to lend. Banks pay interest (suppose X %) from whom it borrows. Afterkeeping a portion of deposits as reserves banks lend to people who demand money as loan and bankscharges interest (Suppose Y %) from them. The difference between what is charged from borrowersand what is paid to depositors is their main sources of income.

Two Different credit Situations

Credit (Loan): It refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.Credit could be useful or not depend on the risks in the situation if there is any support in case of loss.Credit plays positive role if income of borrowers increase.Credit plays negative role if borrowers are caught in the debt trap.Credit pays a vital and positive role in economic life.

Meaning of debt trapIf a person takes a loan and due to unavoidable circumstances he is not able to repay his loan now he faces a difficult situation and has to take tough decision, either he has to borrow a fresh loan or sell some part of his property to repay the earlier loan. This situation is called Debt- Trap. Credit in this case pushes the borrower into a situation from which recovery is very painful.

Terms of Credit: It includes details regarding interest rate, collateral and documentation requirement and the mode of repayment.

Collateral: It is an asset that the borrower owns (such as land, building, vehicles, livestock, deposits with banks) and uses this as a guarantee to a lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to sell the asset or collateral to obtain payment.

Formal source of Credit: It includes loans from banks and cooperatives. In the formal sector the interest on loan is very low. Rich urban households depend largely on Formal sources of credit. The Reserve Bank of India supervises the functioning of formal sources of loans.

Informal source of Credit:It includes credit from traders, employers, money lenders, relatives, friends etc. Such type of credit can be obtained without collateral and a fresh credit can be availed without repaying the old one. In the informal sector the interest on loan is high. This leads to increasing debt and debt-trap.

SELF HELP GROUP (SHG): A small group (15 to 20 members), voluntarily formed and related by affinity for specific purpose. It is a group whose members use savings, credits and social involvement as instruments of empowerment. Members can get timely loans for a variety of purposes and at a reasonable rate of interest. It helps borrowers to get credit from formal source, even without collateral. It also provides a platform to discuss the variety of social issues such as health, nutrition, domestic violence etc.

Money and CreditMCQ1. The exchange of goods for goods is:(i) banker of option (ii) bills of exchange (iii) barter (iv) currency2. Currency is issued by:(i) RBI on behalf of central government (ii) By president of India.(iii) By finance minister (iv) None of them3. National Sample Survey Organization is a :(i) Commercial bank organization (ii) An organization of World Bank(iii) An organization associated with Indian Standard. Institute(iv) An institution responsible to collect data on formal sector credit.4. Gold mohar, a coin so named was brought in circulation by:(i) Akbar (ii) Sher Shah Suri (iii) Ashok (iv) Shivaji5. Which agency is not included in informal loan sector or agency:(i) Bank (ii) Village money lender (iii) Trader (iv) Relative of borrower6. In SHG most of the decisions regarding savings and loan activities are taken by:(i) Bank (ii) Members (iii) Non-government organizations (iv) LIC7. Formal sources of credit does not include:(i) Banks (ii) Co-operatives (iii) Employers (iv) LIC8. Security (pledge, mortgage) against loan:(i) Collateral (ii) Token Coins (iii) Promissory Note (iv)CurrencySHORT QUESTION TYPE ANSWERS1. Give the meaning and functions of money.Ans. Meaning of money: Money may be anything chosen by common consent as a medium of exchange and measure of value.The following are the different functions of money: (A) Primary functions:(a) Medium of exchange (b) Medium of value(B) Secondary functions:(a) Store of value (b) Standard of deferred payments (c) Transfer of value(C) Contingent functions:(a) Basis of credit (b) Liquidity (c) Maximum utilization of resources

(d) Guarantor of solvency (e) Distribution of National Income2. What type of monetary system does India follow?Ans. (a) India has adopted a representative paper currency or the managed currency standard.(b) The monetary standard is synonymous with the standard money adopted. Paper currency in India is the unlimited legal tender i.e. it is used to settle debts and make payments against all transactions.(c) RBI (The Reserve Bank of India) issues all currency notes and coins except one rupee notes and coinswhich are issued by the ministry of finance.(d) The system governing note issues the minimum reserve system viz. certain quantity of gold is kept in reserve.3. What is banking? Give the main features of commercial banking.Ans. Banking is defined as the accepting of deposits for the purpose of lending or investment of deposited money by the public, repayable on demand or otherwise and withdrawal by cheque, draft order orotherwise.Main features of commercial banks are as follows:(i) It deals with money, it accepts deposits and advances loans.(ii) It also deals with credit, it has the power to create credit.(iii) It is a commercial institution, whose aim is to earn profit.(iv) It is a unique financial institution that creates demand.(v) It deals with the general public.

4. Why should credit at reasonable rates be available for all?Ans: Informal credit tries to exploit the poor farmers and workers by charging a very high rate of interest on loans and imposing unreasonable terms of credit. At present richer households avail the benefits of formal credit and poor have to depend on the informal sources due to some weak point like absence of collateral security etc. Therefore it should be ensured that formal credit should provide credit.5. why deposits in the bank accounts are called demand deposits?Ans: Deposits in the bank accounts are called demand deposits because they can be withdrawn on demand.6. Explain any two features each of formal sector loans and informal sector loans.

Features of formal sector loans:i. Here rate of interest is reasonable and lower as compared to informal sector loans.ii. RBI supervises the functioning of formal sources of loans.

Features of informal sector loans:i. Higher rate of interest is charged.ii. There is no organisation which supervises the functioning of informal source of loans and there is no one to stop them from using unfair means to get their money back.

7. What are the reasons why the banks might not be willing to lend to certain borrowers?1. Some persons are not able to produce certificate of their earnings. 2. There are other people who are not able to produce documents of their employment. 3. Some persons have nothing to give to the bank as security, collaterals, - no house, no land etc. 4. There are few others who fail to produce two persons who can stand as guarantor, in case he is

unable to repay the loan.

8. In situations with high risk, credit might create further problems for the borrower. Explain.In rural areas, the main demand for credit is for crop production. Crop production involves cost on seeds, fertilizers, pesticides etc. There is a minimum stretch of three to four months between the times when the farmers buy these inputs and sale their crop. Farmers usually take crop loans at the beginning of the season and repay the loan after the harvest. But, sometimes repayment of loans becomes impossible due to failure of the crops. Thus credit in this situation further pushes the borrower into a situation from which recovery is painful.9. Why do new need to expand formal source of credit in India?Compared to formal sources,the informal source of credit charge a much higher rate of interest on loans. Higher cost of borrowing means a larger part of the earnings of the borrower is used to repay the loan. Hence, borrowers have less income left for themselves. Sometimes, the money to be repaid may also be more than the income itself. This will lead to increasing debt and debt trap. So, even if will wish to start an enterprise may not do so because of high cost of borrowing. But less interest means higher income and so they set up small scale industries. Thus , formal source should be expanded which is crucial for the countries development. 10. In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary? 1. The banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance. 2. It sees that the banks give loans not just to profit making business and traders but also to small cultivators, small scale industries etc. 3. Periodically, banks have to submit information to the RBI on how much they are lending to whom at what rate of interest. This is necessary so that the formal sources never use unfair means to get their money back and charge a reasonable interest from the borrowers. 11. How is the facility of cheque useful?Ans.1.The cheques or demand deposits have the essential features of money. 2. They make it possible to directly settle payments without the use of cash.3. Since the cheques/demand deposits are widely accepted as a means of payment along with the currency, they constitute money in the modern economy.

LONG QUESTION TYPE ANSWERS1. Discuss the historical origin of money.Ans. Historical origin of money:(a) Animal money: First of all, human beings used animals as a medium of exchange. For example, the Vedicliterature tells us that cows or horses were used as money in India.(b) Commodity money: Before the invention of money several commodities were used as money. Even today in

small villages food-grains like, wheat, horse gram, rice etc. are used as commodity money.(c) Metallic money: Man used metal, like copper, silver, gold, etc. as a medium of exchange. Coins were mintedby goldsmith and used as money until paper money was invented.(d) Paper money: China was the first country that started using representative paper currency standard. Certainquantity of gold is kept as reserve in proportion to currency notes issued at the particular point of time.Coins are also used besides paper currency in our country.(e) Credit money: Credit money is also known as bank money. It refers to bank deposits kept by people withbanks which are payable on demand and can be transferred from one party to another through cheque/demand drafts/pay orders etc.2. Highlight the formal and informal credit sources in India.Ans. (A) Formal credit sources(i) Commercial Banks (ii) Central Bank (iii) Government Agency (iv) LIC(v) Registered Chit Fund Companies (vi) UTI (vii) Mutual Fund InstitutionAbove mentioned all formal financial institutions accept savings and sanction loans to the people, companies and other agencies.(B) Informal credit sources(i) Local moneylenders: village mahajan and sarafs or gold smiths in the rural areas or in the cities.(ii) Land lords: this class include the big, middle and small category land-lords. They accept as collateral, titledocuments of agricultural land, dwelling unit, factories and issue loans to needy persons and companies.(iii) Self help groups: thrift and credit societies, union of government servants, cooperative societies andfarmers, labourers, domestic helpers and housewives organizations. They also accept savings fromdifferent people and help their needy members.(iv) Chit fund companies and private finance companies are very powerful informalfinancial institutions. Some of them are working very effectively in villages and cities and all pay moreinterest to depositors than the formal agencies and institutions.3. What are main functions of Reserve Bank of India?Ans. The main function of the central bank is to act governor of the machinery of credit in order to securestability of prices. It regulates the volume of credit and currency, pumping in more money when market isdry of cash, and pumping out money when there is credit. Broadly a central bank has two departmentsnamely, issue department and banking department.The main functions are:(i) Issue of currency: the central bank is given the sole monopoly of issuing currency in order to secure controlover volume of currency and credit. These notes circulate throughout the country as legal tender money.(ii) Banker to the government: central bank functions as a banker to the government – both central and stategovernments. It carries out all banking business of the government.(iii) Banker‘s bank and supervisor: Central Bank acts as banker‘s bank in three capacities:(i) it is custodian of their cash reserves.(ii) Central Bank is lender of last resort.(iii) It acts as a bank of central clearance, settlements and transfers.(iv) Controller of credit and money supply: it is an important function of a central bank to control credit andmoney supply through its monetary policy. There are two parts of monetary policy, viz, currency andcredit. Central bank has a monopoly of issuing notes and thereby can control the volumes of currency. Itcontrols credit and money supply by adopting quantitative and qualitative measures

SAMPLE QUESTIONS (MONEY & CREDIT)

1. How does money solve the problems of Barter system?2. Why are Demand Deposits considered as Money?3. “Credit is useful as well as harmful; it depends on the risk involved.” Support the statement with examples.4. Cheap and affordable credit is essential for poor households both in rural and urban areas.” In thelight of the above statement, explain the social and economical values attached to it.5. Why do banks and cooperative societies need to lend more in India? Explain in four points.6. “Poor households are still largely depend on the informal sources of credit to meet their needs.”Why does it happen? Give any four reasons.7. What is Collateral? Why do lenders ask for collateral while lending? Explain.8. What are modern forms of money? Why rupee is widely accepted as a medium of exchange? Howis it executed?9. The following table shows the sources of credit for rural households in India in 2003.Percentage of Sources of credit in Rural Area (2003)

Money Lenders 30%Co-operative Societies 27%Commercial Banks 25%Traders 3%Relatives and friends 7%Landlords 1% Others 7% On the basis of the above pie chart answer the following questions:- a. What is the share of formal sector in total credit? b. Suggest two measures for improving the share of formal sector in total credit. c. Why is money lender still the largest single sources of credit?

10. What are the differences between formal and informal sources of credit?11. Explain the role of credit in economic development.12. What is the basic idea behind the SHGs for the poor? Explain.13. Why should credit at reasonable rates available for all?

MCQ

1. Which of the following will provide formal sector loan? a. Money lenders and traders c. Relatives and Friends b. Banks and cooperatives d. Land lords and Relatives2. Which is the major reason that prevents poor from getting loans from the banks? a. Absence of collaterals c. Absence of mediators b. Lack of Capital d. None of these3. Which of the following is the main source of credit for the rich household? a. Informal sector c. Self Help Group b. Formal Sector d. Local Money Lender4. An essential feature of barter system is:-

a. A person holding money can easily exchange it with any commodity b. A measure and store of value c. Double coincidence of wants d. Medium of exchange of goods with money5. Which of the following is the appropriate meaning of collateral? a. Bank c. Security b. Cheque d. Loan

GLOBALISATION IN INDIAN ECONOMY

Meaning of Globalisation: Integration of national economy with rest of the world economies is known as globalization. Or“Globalisation is the process of integrating various economies of the world without creating any hindrances in the free flow of goods and services, technology, capital and even labour or human capital.”

Meaning of MNCs: A MNC is a company that owns or controls production in more than one country.Role of MNCs: To earn greater profits, MNCs set up offices and factories for production where they get cheap labour and other factors for production. In present era the goods and services are produced globally. Production is organized in increasingly complex ways. China provides cheap manufacturing locations for MNCs. India provides highly skilled engineers for technical aspects and English speaking youths for customer care services. Production across countries means 50 – 60 percent costs saving for MNC.

Meaning of Investment & Foreign Investment:The money that is spent to buy assets such as land, building, machines and other equipments is called‘investment’.Investment made by MNCs is called ‘Foreign Investment’.Investment is made to earn profit.

Process of spreading of MNCs across the countries:1. MNCs directly set up production units in different countries.2. Buy the existing production units abroad and expand the size for more production.3. Place orders to factories in different countries, collect, assemble, put their brand name and sale in

different countries.4. MNCs set up production units jointly with local companies and provide them the latest technology.

Benefits of Foreign Trade: Foreign trade results in connecting the markets or integration of markets in different countries. Foreign trade provides a global market to sell products for producers.Foreign trade provides choice of goods to buyers.

Purpose of Globalisation:(Arguments in favour of )

The following arguments are given in favour of globalisation:1. To promote direct foreign investment to enable developing countries to raise capital without

international indebtedness. 2. To enable developing countries to make use of technology developed by advanced countries without investment in research & development. 3. To widen the access of developing countries to export their produce in developed countries.

4. To enable the consumers of developing countries to obtain quality consumer goods at lower prices. 5. Globalisation is considered as the engine of growth, technical advancement, raising productivity,enlarging employment and bringing about poverty reduction along with modernization.

6. MNCs play major role in the globalisation process. More and more goods and services investments and technology are moving between countries.

Factors that have enabled Globalisation:1. Development in information and communication technology.2. Improvement in transportation technology.3. Advancement of science & technology.4. Liberalisation of foreign trade and foreign investment policy 5. Pressures from international organizations such as W .T O.6. Development of containers.

Meaning of Liberalisation policy:Removal of trade barriers or restrictions set by the government is what is known as ‘Liberalisation’.

Benefits of liberalisation: With liberalisation of trade, business is allowed to make decision freely for import and export. Under the liberalisation of foreign trade and foreign investment policy the government reduces the trade barriers.

Meaning of World trade organization (WTO):

“The World Trade Organisation (WTO) is an organisation that intends to supervise and liberalise international trade.”

Functions of World Trade Organisation (WTO):1. To provide frame work for the implementation, administration and operation of multilateral trade

agreements.2. To provide forum for negotiations among its members concerning trade relation. 3. To administer trade policy review mechanism.

Objectives of World Trade Organisation (WTO): 1. To promote world trade that benefits every country. 2. To enhance competitiveness among all trading partners so as to benefit consumers and help in global Integration. 3. To expand and utilize world resources to the best. 4. To increase the level of production and productivity.About World Trade Organisation (WTO):World Trade Organisation (WTO) came into existence on 1st January, 1995.Its headquarter is located in Geneva, Switzerland.At present 159 countries are its members.The main aim of WTO is to make the global trade free and fare.

Impact of globalisation on India:

1. India’s export has increased manifold.2. Service export increased from $ 4.6 billion in 1990 to $ 37.7 billion in 2003, indicating annual

average growth rate of 17.5 % during period.3. India has become the 3rd largest global telecom market in the world.4. Telecommunication and software industries are booming in India.5. Famous international brands (Armani, GUCCI, Nike, Omega etc.) are investing in the Indian market

with the changing of fashion statements of Indians.6. Indian consumers have better choice of goods and services.7. Foreign direct investment has increased in India.8. Local companies supplying raw materials to MNCs have prospered.9. Globalisation has enabled large Indian companies to emerge as multinationals.

India’s problem with globalisation:Some section of people in India, basically poor and very poor did not feel the heat of globalisation atall. They remain poor and poorest as they were. It has Increased gap between rich and poor. Ethical responsibility of business has been diminished. High growth but problem of unemployment. Price hike of every daily use commodities has become common. Casualisation of workforce has increased.

The role of government for fair globalization:1. The government can ensure that labour laws are properly implemented and the workers get theirrights.2. The government can support small producers to improve their performances to become strong enough to compete.3. The government can negotiate at WTO for “fairer rules”.

Special Economic Zones (SEZs):Special economic zones have been set up to attract foreign investment in India. Under Special Economic Zone world class facilities of electricity, water, roads, transport, storage and education are provided to investors. Companies who set up production units in the SEZs do not have to pay taxes for an initial period of five years. The government has allowed flexibility in the labour laws to attract foreign investments.

Sample question and answer

Globalisation and the Indian economy

Q.1. Explain visible impact of globalisation on the Indian economy, with two examples.

New jobs have been created in industries where MNCs have invested such as electronics, fast food, cellphones etc. Some Indian companies have become multinational themselves due to globalisation, e.g., Tata motor (automobiles), Ranbaxy (medicines).Q.2. Discuss disadvantages of MNCs?

1. MNCs are profit- oriented are not concerned with an overall economic development of the host countries.

2. Their technology is usually capital intensive which is not suited for a country like India.3. MNCs create regional economic disparities.

4. MNCs may prove detrimental to industrial development in the long run. 5. MNCs often resort to undesirable and corrupt practices.

Q.3. why is ‘tax’ on imports known as a trade barrier? Why did the Indian government impose barrierson foreign trade and foreign investments after independence? Give three reasons.Tax on imports known as a trade barrier, because government can use it to increase or decrease (regulate) foreign trade. The following are the reasons: 1. To protect the producers within the country from foreign competition.2. To safeguard the industries which were just coming up in the 1950s and 1960s from competition from imports.3. To allow imports of only essential items such as machinery, fertilizers, petroleum etc.Q.4. “Globalisation and competition among producers has been of advantage to the consumers.” Give argument in support of this statement.There is a greater choice before the consumers particularly the well-off sections in the urban areas.Consumers now enjoy improved quality and lower prices for several products. Even it makes immigration and emigration of skilled labour force easily. Therefore, people today enjoy higher standards of living than possible either. It has also resulted in increased volume of output in terms of income and employment.Q.5. Why are the Chinese toys popular in India?This is because they are cheaper and have new designs. Some of the features are very attractive which motivate the children to insist on for that particular toy. Q.6. What is the idea of developing Special Economic Zones (SEZs) In India?In order to attract foreign companies to invest in India SEZs are developed. In SEZs world class infrastructural facilities are made available. These help the MNCs to produce easily and quickly. They are not worried about acquisition of land, provision of minimum facilities like water, electricity, communication etc. Q.7. Name any two companies which are benefited from increased competition. TATA Motors, Infosys, Ranbaxy, Asian Paints, Sundaram Fastners. Q.8. Explain any four measures of liberalization taken by Govt. Of India. 1. Many industrial activities which were previously carried out by the public sector enterprises were now opened to private sector also.2. The number of industries reserved for public sector has been reduced from 30 to 17.3. No private sector is allowed to enter the field of core industries like iron & steel, heavy machinery, transport, ship building, electricity, air transport and some defence goods.4. Many formalities have been simplified to a great extent to facilitate the industrialists to produce goods in India.

MCQs on Globalisation:

1. The process of rapid integration of countries is called a.Liberalisation c. Globalisation b. Urbanisation d. None of These2. Which of the following statement is true regarding MNCs? a. These are working only in India b. These belong to USA only c. These own or control production in more than one country d. These must own or control production at least in ten countries3. Removing barriers or restrictions set up by the government is known as a. Privatisation b. Liberalization c. Globalization d. Industrialization4. Globalization has lead to improvement in living conditions a. Of all the people b. of people in the developed countries c. Of workers in the developing countries d. None of the above5. WTO came into existence in a. 1995 b. 1996 c. 1994 d. None of theseSAMPLE QUESTION FOR PRACTICE (GLOBALISATION AND INDIAN ECONOMY)1. Where do MNCs set up their production units? Explain.2. Rapid improvement in technologies has been a major factor that has stimulated the globalization process.Support the statement with suitable examples.3. Describe the factors which have enabled globalization in India with examples.4. How do multinational companies manage to keep the cost of production of their goods low? Explain with examples.5. How can free and fair trade be achieved? Explain.6. The impact of globalization has not been uniform in India. Explain this statement.7. How have our market being to transformed in recent years. Explain with examples.8. What is W .T .O? Describe its three aims.9. Foreign trade results in connecting the markets or integration of markets in different countries. Explain how?10. What are the three different ways in which MNCs set up and spread themselves in various countries?11. How are local companies benefitted by collaborating with MNCs? Explain with examples.12. Mention problems that forced India to undertake New Economic Policy of 1991.13. Distinguish between Foreign trade and foreign investment.14. How has liberalization of trade and investment policies helped the globalization process.15. Why do developed countries want developing countries to liberalise their trade and investment?16. Why do governments try to attract more foreign investment?17. How has competition benefited people in India?18. What is the role of MNCs in the globalization process?19. How would flexibility in labour laws help companies?20. Write two positive & two negative impact of globalization on Indian economy.21. Write short note on special economic zones.22. What do you mean by fair globalisation? What role the government can play in it.

23. How can the benefits of globalization be shared better? Explain.

Globalization and the Indian Economy.MCQ1. MNC stands for(i) Multinational Corporation (ii) Multination Corporation(iii) Multinational Cities (iv) Multinational Council2. Investment made by MNCs is called(i) Investment (ii) Foreign Trade(iii) Foreign Investment (iv) Disinvestment3. Process of integration of different countries is called(i) Liberalisation (ii) Privatisation(iii) Globalisation (iv) None of the above4. MNCs do not increase(i) Competition (ii) Price war (iii) Quality (iv) None of the above5. This helps to create an opportunity for the producers to reach beyond the domestic market(i) Foreign trade (ii) Domestic trade (iii) Internal trade (iv)Trade barrier6. Foreign Trade(i) Increases choice of goods (ii) Decreases prices of goods(iii) Increases competition in the market (iv) Decreases earnings7. Globalisation was stimulated by(i) Money (ii) Transportation (iii) Population (iv) Computers8. Production of services across countries has been facilitated by(i) Money (ii) Machine (iii) Labour (iv) Information and communication technology9. Tax on imports is an example of(i) Investment (ii) Disinvestment (iii) Trade barrier (iv) Privatisation10. Liberalisation does not include (i) Removing trade barriers (ii) Liberal policies(iii) Introducing quota system (iv) DisinvestmentSHORT TYPE QUESTION ANSWERSQ.1 Write four functions of WTO.Ans. Four functions of WTO are:(i) Administering trade agreements between nations. (ii) Forum for trade negotiations.(iii) Handling trade disputes. (iv) Maintaining national trade policy.Q.2 What is the impact of WTO on Indian economy?Ans. The impact of WTO on Indian economy is:(i) An opportunity to India for trading with other member countries.(ii) Availability of foreign technology to India at a reduced cost.(iii) Many laws of WTO are unfavorable to the developing countries like India.(iv) Certain clauses of WTO agreement on agriculture put restrictions on the provision of subsidized food grainsin India.Q.3 What is trade barrier? How governments can use trade barriers?Ans. Any kind of restrictions imposed on trade is called a trade barrier.Governments can use trade barriers to increase or decrease (regulate) foreign trade and to decide what kinds of goodsand how much of each, should come into the country.Q. 4 What is privatization and liberalization?

Ans. Privatization means allowing the private sector to set up industries which were earlier reserved for the publicsector. Removing barriers or restrictions set by the government on trade is called liberalization. Thus, privatization andliberalization results in freedom from closed and regulated economy.Q. 5 How MNCs can spread their production?Ans. MNCs can spread their production by:-1. Setting up joint production units with local companies.2. To Buy up local companies and expanding its production base.3. Placing orders with small producersQ.6 Mention three factors responsible for globalization.Ans. (i) Growth of MNCs.(ii) Growth of technology.(iii) Development in transport and communication technology.

LONG TYPE QUESTION ANSWERS

Q.1What do you mean by Globalization? What are the effects of globalization in India?Ans. Globalization is the integration or interconnection between the countries through trade and foreigninvestments by multinational corporations (MNCs).Positive impacts:-1) Greater choice and improved quality of goods at competitive price and hence raises standard of living.2) MNCs have increased investments in India.3) Top Indian companies emerged as multinationals.4) Created new opportunities for companies providing services like IT sector.5) Collaborations with foreign companies help a lot to domestic entrepreneurs.Negative impacts:-1) Indian Economy faced the problem of brain drain.2) Globalization has failed to mark its impact on unemployment and poverty.3) Cut in farm subsidies.4) Closure of small industries.Q.2 What is WTO? What are the aims of WTO? What are the drawbacks of WTO?Ans. WTO is World trade organization. It is an organization which is in favour of increasing the world tradethrough globalization.The aims of WTO are:(i) To liberalise international trade by allowing free trade for all.(ii) To promote international trade among the countries of the world in an open uniform and nondiscriminatorymanner.(iii) Removal of both the import and export restrictions.The drawbacks of WTO are:1) WTO is dominated by the developed country2) WTO is used by developed countries to support globalization in areas that are not directly related to trade.3) Though WTO is supposed to allow free trade for all, in practice, it is seen that the developed countries haveunfairly retained trade barriers.Q.3 What are MNCs? How the MNCs functions? What are the main guiding factors of MNCs?Ans. MNCs are Multinational corporations. It is a company that owns or controls production in more than oneNation. MNCs set up offices and factories for production in region where they can get cheap labour andother resources, closer to the markets. This is done to reduce the cost of production and the MNCs canearn greater profits. MNCs not only sell its finished products globally but also the goods and services are

produced globally. The production process is divided into small parts and spread across the globe.The main guiding factors of MNCs are:(i) Cheap production(ii) Closeness of production unit to the markets.(iii) Favourable government policies.Q.4 What are the ways through which MNCs spread their production and interact with local producers?Ans. There are a variety of ways in which MNCs spread their production and interact with local producers invarious countries across the globe.(i) Setting up partnerships with local companies,(ii) Using the local companies for supplies(iii) Closely competing with the local companies or buying them up,(iv) MNCs are exerting a strong influence on production at these distant locations so that they couldproduce at cheapest price and earn profit.Q . 5. How does foreign trade lead to the integration of the economy? Ans. For a long time, foreign trade has been the main channel connecting countries. Foreign trade creates an opportunity for the producers to reach beyond the domestic markets i. e. markets of their own countries. Producers can sale their produce not only in markets located within the country but can also compete in markets of the world. Similarly the buyers have an expanded choice of goods what is domestically produced. Thus, producers of different countries closely compete against each other and this result in connecting the markets or integration of the economy in the world.

Consumer RightsConsumer Movement:In India, the consumer movement as a social force originated with the necessity of protecting and promoting the interests of consumers against unethical and unfair trade practices.Rampant food shortages, hoarding, black marketing, adulteration of food & edible oil gave birth to the consumer movement in an organized from in the 1960s.

Markets do not work in a fair manner when producers are few and powerful where as consumers purchase in small amounts and are scattered. These companies with huge wealth, power and reach can manipulate the market in various ways.

Consumer Awareness: Consumer awareness means educating consumers about their rights and duties so that consumers should be well-conversant with the laws that protect their interests and restrict traders to exploit them.

Measures to protect consumer rights: Measures taken to promote consumer movement in the country: Enforcement of consumer protection Act 1986.Amendment of various legislations such as prevention of food Adulteration Act 1954.Empowerment of consumer and registered consumer organizations to file complaints in the courts. Publishing printed material and its free distribution etc. In 1985 United Nations adopted the UN guidelines for consumer protection.

Meaning of a consumer: A consumer includes anyone and everyone who makes a purchase.

Different ways by which consumers are exploited:

1. Hoarding and black- marketing.2. Adulteration3. Substandard quality

4. High prices5. Under weight and under measurement6. False claim7. Lack of safety devices8. Duplicate articles9. Unpleasant behavior and unnecessary terms and conditions.

Factors causing exploitation of consumers:

1. Limited information: A consumer needs full information about price, quality durability Composition, etc. of the product. in the absence of full & correct information a consumer may get exploited .2. Limited supplies: When the supply of goods is less than their demand then a consumer may get exploited by charging higher price.3. Low literacy: Illiteracy causes ignorance which leads to exploitation of consumer.4. Ignorant about their rights and duties: Many consumers do not know as to what are their rights and

duties. In case of any complaint, they do not know where they have to go. They lack consumer education.

Points to remember:

Consumers’ international has become an umbrella body of 240 organizations from over 100 countries. World consumer Right day is celebrated on 15th march every year. Consumer activist, Ralph Nader is considered as the father of consumer movement. National consumer Right Day is celebrated on 24th December every year. It was on this daythat Indian

parliament enacted the consumer protection Act in 1986. In India the enactment and enforcement of the consumer protection Act in 1986 is a milestone for

the protection of consumers. The main objective of this act is to provide better protection to consumers . The act is intended to provide simple speedy and inexpensive redressal to the consumers’ grievances

and relief of a specific nature and award of compensation wherever appropriate to the consumer.

Legislative measures include enactment of the consumer protection act. Administrative measures include distributing essential commodities through public distribution

system. Technical measures consist of standardization of products. Bureau of Indian Standards (BIS) caters to the industrial and consumer goods. AGMARK is meant for the agricultural products. International Organization for Standardization (ISO) certifies the standards of products at the international level. ISO established in 1947 is located in Geneva. Consumer International is a global institution of consumer welfare organization.

CONSUMER RIGHTS:

1. The Right to safety- consumer have right to be protected against the marketing of goods and serviceswhich are hazardous to life and property. There are many thing of daily utility which need special attentionto safety such as pressure cookers which have a safety valve and if that is defective can cause a seriousaccident. Producers need to strictly follow the safety rule and regulation.2. Right to be informed- All information regarding the product its ingredients date of manufactureprecaution of use etc should be enumerated either on the package or separately on piece of paper. . Thus,a consumer has right to be informed.3. Right to choose- The consumer has the right to choose the product of his choice out of the alternativeproducts available.4. Right to seek redressal – When consumer are cheated or exploited they have a right to get their claimssettled against manufacturer. A number of consumer courts and agencies have been set up specifically forthis purpose.5. Right to be heard – Every consumer must be granted the Right to be heard .He must be assured that hiscomplains and grievances about the products and services will be heard and attention paid to them.

7. Right to Consumer education- A consumer can be protected against frauds only when he/she knows that there is a law dealing with such malpractices. He/she should be aware of the rights and remedies available.

Consumer Protection Act (COPRA)Under COPRA, three- tier quasi-judicial machinery has been designed at district, state and national level. District level court deal with the case involving claims up to Rs20 lakh, the state level courts between Rs20 lakh and Rs1crore and the national level court deals with cases involving claims exceeding Rs 1crore.SAMPLE QUESTIONS:

Q.1. What are the three-tier quasi-judicial machinery set up for redressal of consumer disputes? Mention their jurisdiction.Ans: The three-tier quasi-judicial machinery at the district, state and national level was set up for redressal of consumer disputes. Claims upto which they deal are as follows-a) District level courts ------------ Upto Rs. 20 lakhsb) State level courts ------------ Between Rs. 20 lakhs and Rs. 1 crorec) National level court ------------Exceeding Rs. 1 crore

However, a case when dismissed in district level court, the consumer can appeal in state and then in national level court. QUESTIONS FOR PRACTICE:

1. Explain three ways by which people are exploited in the market.2. The consumer redressal process is becoming cumbersome, expensive and time consuming .Do you agree? Give two reasons in support of your answer.3. How do we participate in the market as producers and consumers? Explain with three examples.4. Explain any three consumer’s rights as user of goods and services.5. What were the factors responsible for arising consumer movement? Explain any three.

6. Explain the three tier quasi judicial machinery under COPRA.7. What are the duties of consumers while purchasing a thing? Write any five points.8. Explain the main factors responsible for the exploitation of consumers in India.9. Why are rules and regulations required for the protection of the consumer in the market place? Explain.10. What is the rationale behind the enactment of consumer protection Act 1986?11. Write a short note on Right to information Act 2005.12. Explain any five rights of consumer.

MCQ on Consumer Rights1. In which one of the following years was the Right to Information act implemented? a. 2004 b. 2006 c. 2005 d. 20072. Name the umbrella body of 240 organizations from over 100 countries for consumer movement. a. Consumer protection act b. Consumer International c. UN Guidelines for Consumer protection d. UNDP3. Consumer movement was organized for the first time in India during the a. 1950s b. 1960s c. 1970s d. 1980s4. Hallmark is the certification maintained for the standardization for which one of the following? a. Jewellery b. Electrical Goods c. Edible oil d. Refrigeration5. ISI mark can be seen on which of the following items? a. Jewellery b. Edible oil c. Electrical appliances d. Cereals

MCQs Consumer Rights1. A consumer (i) Sells goods and services (ii) Buy goods and services (iii) Produces goods and services (iv) Delivers goods and services2. Adulteration is (i) Selling defective items (ii) Overpricing (iii) Underweight measurement (iv) Mixing cheap materials3. Causes of consumer exploitation (i) Right to Information (ii) Proper Supply (iii) Low literacy (iv) High literacy4. Which is not a function of PDS (i) Control Hoarding (ii) Control Prices (iii) Control over charging (iv) Consumer Redressal5. COPRA stands for ( i) Consumer Protection Act (ii) Consumer Prevention Act ( iii) Consumer Police Act (iv) Consumer Power Act6. Pick odd one out (i) Right to information (ii) Right to choice

(iii) Right to adulteration (iv) Right to redressal7. Pick odd one out (i) Right to safety (ii) Right to life (iii) Right to consumer education (iv) Right to representation8. National Consumer Day is celebrated in India (i) 24 December (ii) 25 December (iii) 26 December (iv) 27 December9. COPRA does not propose formation of (i) National Consumer Court (ii) State Consumer Court (iii) District Consumer Court (iv) High Court10. ISO stands for (i) International Standard Organization (ii) International Organization for Standardization (iii) International School Organization (iv) International Standardization

SHORT QUESTION TYPE ANSWERSQ.1 Why COPRA is enacted in India?Ans. Consumer Protection Act 1986 (COPRA) is enacted in India with following motives: (i) To pressurize business firms. (ii) To correct unfair business conduct. (iii) To protect the interests of the consumers.Q. 2 What do you understand by consumer protection?Ans. By consumer protection we mean the protection of the consumers against the unfair and malpracticesadopted by the businessmen. These may be grouped mainly into two categories. (i) Government measures (ii) Voluntary measuresQ. 3 How do the logos ISI, Agmark or Hallmark help consumers?Ans. These logos and certification help consumers get assured of quality while purchasing goods and services. Theorganizations that monitor and issue the certificates allow the producers to use these logos provided they follow certain quality standards.Q. 4 What is adulteration?Ans. When some foreign matter, injurious to health, is mixed with any good or natural production, it is calledadulteration. This is the most heinous crime against humanity.Q. 5 Mention a few Organizations that provide certification of standardization in India.What do you mean by ISO? Ans. (i) BIS and ISI (ii) AGMARK (iii) HALLMARKIt means International Organization for Standardization which has its headquarter at Geneva. It does theStandardization work at the international level.Q. 6 What is the need for consumer awareness?Ans. The need for consumer awareness was felt because both the manufacturers and traders can go to any extentout of their selfishness. They can charge high prices, and resort to underweight and under measurementmethods. Their lust for money may lead to loss of money and health of consumers.Q.7. What is ISO? It means international organization for standardization which has its headquarters at Geneva. It does the standardization work at the international level.Q. 8. What is BIS & Hallmark?

BIS stands for Bureau of Indian Standards. It is used for standardization of products. Earlier it was known as Indian Standardisation Institue( ISI). Hallmark is used for standardization of jewellary products. Q. 9. What are the ill effects of advertisement?Most of the consumers are so much attracted by the advertisement of different articles nthat they do not ntry to verify the quality of different goods. They buy with a lightning speed and often repent afterwards.

LONG QUESTION TYPE ANSWERS

Q.1 What are the different forms of consumer exploitation?Ans. The different forms of consumer exploitation are:(i) Less weigh. (ii) Defective goods. (iii) Provide poor services.(iv) Impure quality of products/goods. (iv) High prices: sellers usually charge a price higher than theprescribed retail price. (v) Duplicate Articles.(vi) False or incomplete information, misleading consumers.(vii) Lack of safety devices which cause harm to the consumers.(vi) Adulteration: Mixing or substituting undesirable materials in food items etc.(vii)Unsatisfactory after sale service: supplies do not provide satisfactory behavior.(viii) Large companies with huge wealth, power and reach can manipulate in the market.Q.2 What are the factors responsible for the consumer exploitation?Ans. The following factors are responsible for the consumer exploitation:(i) Limited information - For a correct decision and choice about a product, a consumer needs full informationabout the price, quality, durability, composition, etc of the Product. In the absence of full and correctinformation, a consumer may get exploited.(ii) Limited supplies- when the supply of goods is less than their demand, the prices may go high and may alsoencourage the tendency of hoarding. As a consequence, consumers will get exploited.(iii) Limited competition-when there is limited competition with regard to production i.e., when producers arefew and can control and restrict the supply of a product there is a possibility of manipulation in prices.(iv) Low literacy-Illiteracy causes ignorance, which leads to exploitation of consumers. The level of awarenessin our country is generally low.Q.3 What are consumer protection councils? ORQ. What are consumer forums?Ans. These are voluntary organizations locally known as consumer forums or consumer protection councils. The mainactivities of the consumer forums or consumer protection councils are:(i) They guide consumers on how to file cases in the consumer court.(ii) They may represent individual consumers in the consumer courts.(iii) They create awareness among the people.These voluntary organizations receive financial support from the government for the above purposes.Q.4. Describe various duties of consumers.1. While purchasing anything from the market, the consumer should be very careful about the quality of goods. As well as guarantee of products and services. 2. They should preferably purchase quality goods marked by ISI, Agmark etc. 3. Every time they purchase anything , they should ask for the cash memo. 4. Consumers should form consumer awareness organizations in their own localities and help each other when called for. 5. They should complain to the proper authorities ( District, State or Central Consumer protection Councils) and cooperate with them till the culprit is duly punished and their grievances are redressed.

6. The consumer must know their rights and exercise them promptly and properly. In short, we can say that the duties of the customers are to redress their grievances, if and whenever any of their rights are infringed or violated by any shopkeeper, seller or producer.Q.5. How is the public distribution system helped to people? What was its need? The PDS ensures availability of essential commodities like wheat, rice, sugar edible oil and kerosene etc. to the consumers through a network of outlets or fare price shops. According to latest estimates, there is a network of about 4.6 lakh fare price retail outlets in our country.