Money Market Instruments
Question
With reference to the Indian economy, consider the following statements: Which of the statements given above is/are correct?
- 1.
'Commercial Paper' is a short-term unsecured promissory note.
- 2.
'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
- 3.
'Call Money' is a short-term finance used for interbank transactions.
- 4.
'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Options
1 and 2 only
2 and 4 only
1 and 3 only
1, 3 and 4 only
Explanation
Commercial Paper is a short-term, unsecured promissory note issued by highly rated corporations (Statement 1 is correct). Certificate of Deposit is a short-term money market instrument issued by commercial banks, not the RBI (Statement 2 is incorrect). Call Money refers to ultra-short-term (usually overnight) funds borrowed/lent by banks amongst themselves to meet reserve requirements (Statement 3 is correct). Zero-Coupon Bonds do not pay periodic interest; instead, they are issued at a deep discount and redeemed at face value (Statement 4 is incorrect). > One-line conceptual takeaway: Money market instruments are predominantly short-term debt tools used by banks and corporations for liquidity management. Answer: (c).
Question details
Year
2020
Paper
GS Paper 1
Question
Q70
Subject
Economy
Sub-topic
Financial Markets & Instruments
Type
Statement-based
Difficulty
Hard
Nature
Static
Source hint
NCERT Business Studies / RBI Glossary
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