Teachers guide students to use Exploring Society India and Beyond Class 7 Solutions and Class 7 SST Part 2 Chapter 8 Banks and the Magic of Finance Question Answer NCERT Solutions for quick learning.
Banks and the Magic of Finance Questions and Answers Class 7 SST Chapter 8
Banks and the Magic of Finance Class 7 Question Answer (In-Text)
The Big Questions? (Page 193)
Question 1.
What is financial infrastructure, and what does it comprise?
Answer:
Financial infrastructure is the system that enables smooth financial transactions among people, businesses, and the government. It comprises banks, payment systems (like UPI, ATMs, debit cards, internet banking), stock markets, and other financial institutions such as post offices, NABARD, and IFCI. These institutions support saving, borrowing, investing, and transferring money efficiently across the economy.
Question 2.
What are the main functions performed by banks and how do they impact people’s lives?
Answer:
Banks accept deposits, keep people’s money safe, and pay interest to encourage savings. They also provide loans to individuals and businesses for purposes like building houses, buying vehicles, funding education, or running enterprises. Banks enable withdrawals and payments through cheques, ATMs, debit cards, and digital methods. By supporting saving, borrowing, and payments, banks make daily financial activities easier and help people improve their economic well-being.
Question 3.
How does financial infrastructure contribute to a nation’s progress?
Answer:
Financial infrastructure ensures the smooth flow of money throughout the economy, enabling households, businesses, and the government to transact efficiently. It promotes savings, investment, and credit, which support business expansion, job creation, and economic growth.
Digital payment systems improve transparency and reduce dependence on cash, while stock markets help companies raise money for development. Together, these systems strengthen the economy and enhance national prosperity.
Let’s Explore
Question 1.
This picture is from a bank. What do you think the people are doing? Ask your family members if they have visited a bank and learn more about the activities there. (Page 194)
The people in the picture appear to be visiting a bank to carry out financial activities such as depositing money, withdrawing cash, updating their passbooks, or speaking to bank staff for help with accounts or loans. Some may be waiting in line to meet the cashier, while others might be filling out forms or getting information about bank services. After asking family members, I have that leamt that people visit banks for many reasons, such as:
- Depositing savings into their accounts
- Withdrawing money using withdrawal slips or cheques
- Updating passbooks to check transaction records
- Applying for loans for business, education, or housing
- Opening new accounts such as savings, current, or fixed deposits
- Getting ATM or debit cards issued
- Transferring money or submitting cheques Banks provide many services that help people manage their money safely and conveniently.
Think About It
Question 1.
Read the story of Navdeep and Rima and answer the following question: (Page 196)
(i) Why does Navdeep think that saving at the bank is better than keeping cash at home?
Answer:
Navdeep thinks saving at the bank is better because the bank keeps his money safe and also pays him interest, which helps his savings grow over time. Keeping cash at home is risky as it can be lost, stolen, or damaged, and it does not earn any interest.
(ii) Can Navdeep and Rima lend to each other directly without the bank? What could happen in that case?
Answer:
Navdeep and Rima could try to lend directly to each other, but it would not be safe or reliable. Without a bank:
- There would be no proper record of the transaction.
- There is no guarantee that the loan will be repaid on time.
- They may not always have the exact amount the other person needs.
- Personal relationships might be affected if repayment problems occur.
Banks act as trusted intermediaries, keeping deposits safe, giving loans when needed, and ensuring clear terms and records, which would not be possible if they lent directly to each other.
Question 2.
How does one track so many transactions of deposits and withdrawals? The bank provides a diary-like document called a passbook that keeps a record of all the receipts and payment transactions. This can be updated regularly at the bank. (Page 198)
Answer:
Banks provide a passbook, which is a diary like document that records every transaction in a person’s bank account. It shows all deposits (credits), withdrawals (debits), and the updated balance, and it can be regularly updated at the bank so account holders always know their financial status.
Question 3.
Look at the passbook in the below picture. Observe all the particulars under the expenses (debit) and income ‘ (credit). Why is keeping records of financial transactions important? Discuss in the class.
Answer:
Keeping records of financial transactions is important because:
- It helps people know exactly how much money is in their account at any time.
- It allows them to confirm that deposits, withdrawals, and payments are recorded
- It helps detect errors, unauthorized withdrawals, or fraudulent activities quickly.
- Clear records help individuals plan their spending, saving, and budgeting better.
- A passbook provides transparency and ensures trust between the bank and the account holder.
Question 4.
In ancient India, temples acted like banks. Although they did not accept public deposits like modern banks, they lent money to artisans, merchants, and the local government for building infrastructure. Contracts between the temples and the concerned party were etched on copper plates. These have survived to give us a glimpse of how they functioned.
One such example is an inscription from Kodumbalur in Tamil Nadu, dating back to the 13th century, which refers to communities that borrowed money from the Tirumudukunramudaiya-Nayanar temple with an agreement to pay interest. (Page 202)
Answer:
In ancient India, temples acted like early financial institutions even though they did not function exactly like modern banks. They lent money to artisans, merchants, and local authorities for purposes such as building infrastructure and supporting economic activities. Instead of written paper agreements, contracts were engraved on copper plates, which have survived and provide evidence of how these temple-based financial systems operated.
One example from the 13th- century Kodumbalur inscription in Tamil Nadu shows that communities borrowed money from the Tirumudukunramudaiya-Nayanar temple with an agreement to pay interest. This demonstrates that organized lending, record-keeping, and interest- based transactions existed long before modern banking systems.
Question 5.
India’s digital payments revolution is expanding rapidly across borders. Nepal was the first country 2022. Today, nations such as the United Arab Emirates, France, Sri Lanka, Bhutan, Mauritius and so on have adopted it, and more countries are increasingly showing interest. This instant, efficient and secure system is truly India’s gift to the world of payment systems! (Page 207)
Answer:
India’s digital payments revolution, led by UPI, has grown so rapidly that it is now being adopted by countries outside India. Nepal became the first country to use India’s UPI platform in 2022, marking the beginning of its global expansion. Since then, nations such as the United Arab Emirates, France, Sri Lanka, Bhutan, and Mauritius have adopted UPI-based systems, and many more countries are showing interest.
This widespread adoption is due to UPI’s instant, efficient, and secure payment features, which make financial transactions simple and accessible. The growing global recognition of UPI shows that it is truly India’s gift to the world of payment systems, demonstrating India’s leadership in digital financial innovation.
Question 6.
Why do companies issue shares, and why do people buy them? Are there any benefits of owning shares? (Page 209)
Answer:
Companies issue shares to raise money for their operations, such as expanding their business, launching new products, or purchasing machinery. By selling shares, they collect funds from the public without taking loans from banks.
People buy shares because they become part-owners of the company, and they expect the value of their shares to increase if the company performs well. When share prices rise, investors can earn a profit by selling them. Owning shares has benefits such as the possibility of earning returns when share prices go up and having a small ownership stake in the company. However, share prices can also fall, so investors must be aware of risks.
Banks and the Magic of Finance Class 7 Solutions (Exercise)
Question 1.
What is financial infrastructure? How does it complement physical infrastructure?
Answer:
Financial infrastructure is a network of banks, payment systems, stock markets, and financial institutions that help people, businesses, and the government conduct financial transactions smoothly. It complements physical infrastructure by enabling the flow of money needed to build and maintain roads, railways, telecommunications, and other economic activities.
Question 2.
How does having a bank account help people? Should everyone be required to have a bank account?
Answer:
A bank account helps people save money safely, withdraw cash when needed, make payments, and receive wages or scholarships directly. It also allows access to loans and digital payment systems. The chapter explains how schemes like Jan Dhan Yojana helped millions open accounts, showing that having a bank account benefits everyone. Thus, while not mandatory, it is highly useful for financial inclusion.
Question 3.
What could be the possible advantages and disadvantages of compound interest for savers and borrowers?
Answer:
Compound interest is advantageous for savers because their money grows faster over time as interest earns additional interest. For borrowers, however, compound interest can make loans costlier, as the amount owed increases if not repaid on time. The chapter shows how compounding turns ₹1000 into ₹2012.20 over years, demonstrating its powerful growth effect for savers but a risk for borrowers.
Question 4.
How does financial infrastructure enable the flow of money between households and businesses? Can you think of how the government can facilitate this flow?
Answer:
Financial infrastructure enables the flow of money by allowing households to deposit savings and businesses to borrow funds for operations, investment, and expansion. Banks act as intermediaries, moving money from depositors to borrowers. The government facilitates this flow through regulations, digital payment systems like UPI, and policies such as direct benefit transfers, reducing middlemen and improving transparency.
Question 5.
What could be the reason for the higher interest rate earned on fixed deposits as compared to a savings account?
Answer:
Fixed deposits offer higher interest because the money is locked for a specific period such as 3 or 5 years, allowing the bank to use it reliably for lending. Savings accounts allow frequent withdrawals, so the bank cannot use that money as predictably, and therefore pays lower interest.
Question 6.
Sahil received ₹ 10,000 as a prize in a poster-making competition. His father promises to pay him 12 per cent interest per year if he does not spend the amount. After 3 years, how much money would Sahil have?
Answer:
Using simple compounding ideas from the chapter, after 3 years:
Year 1: 10,000 + 12% = 11,200
Year 2: 11,200 + 12% = 12,544
Year 3: 12,544 + 12% = ₹14,049.28
So Sahil would have approximately ₹ 14,049.28 after 3 years.
Question 7.
How does the stock market help mobilise the savings of individuals? In what ways do companies benefit by issuing shares to people?
Answer:
The stock market allows individuals to invest their savings in shares, helping them potentially earn returns when share prices rise. Companies benefit because issuing shares helps them raise funds for expansion, new projects, and operations. The stock market channels public savings into productive business activities, supporting economic growth.
Question 8.
How can we balance the convenience of digital payments with the risk of cyber fraud?
Answer:
Digital payments become safer when users avoid sharing OTPs, PINs, or personal information, and do not click unknown links or install unsafe apps. The chapter advises reporting frauds through helpline 1930 and being cautious with digital transactions. By following safety guidelines, people can enjoy the convenience of UPI and online banking while protecting themselves from fraud.
Question 9.
Ask your family members or neighbours about—
- how they save money
- whether they use UPI, ATM or cheques, the kinds of transactions they perform through UPI; do they find UPI better than using cash or not. and why.
- if they or their acquaintance have experienced digital fraud, for instance, through a fake call or message asking for bank details. What did they do when they realised it was a scam, and what did they learn from that experience?
Summarise your findings in a table or short report Share one surprising insight with your class.
Answer:
Do it yourself.
Question 10.
Create a Financial Safety Poster.
- Design a poster with dos and don’ts of digital banking safety (example, not sharing OTPs, reporting frauds).
- Include emergency numbers or websites like https:// cybercrime.gov.in or 1930 helpline.
- Hang the posters in school corridors or the library.
Answer:
Do it yourself.
Question 11.
Cheques are often used to pay utility bills. Ask your parents to allow you to fill out the cheques for a few monthly
Answer:
Do it yourself.
Question 12.
Suppose you have to withdraw ₹ 10,000 from your bank account, how would you fill out the cash withdrawal slip at your bank? Let us try below!
Answer:
