With reference to the Indian economy, consider the following statements : 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 Mone

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Q: (IAS/2020)
With reference to the Indian economy, consider the following statements :
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.

Which of the statements given above is/are correct

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,274,116,39,19,274,58

keywords: 

{'reserve bank': [1, 0, 3, 4], 'term bonds': [0, 0, 0, 1], 'coupon bonds': [0, 0, 0, 1], 'indian economy': [0, 3, 3, 5], 'scheduled commercial banks': [0, 0, 0, 2], 'interbank transactions': [0, 0, 0, 1], 'unsecured promissory note': [0, 0, 0, 1], 'term finance': [0, 0, 0, 1], 'commercial paper': [0, 0, 0, 2], 'interest': [1, 3, 3, 15], 'deposit': [1, 1, 0, 5], 'certificate': [0, 0, 1, 2], 'corporation': [0, 1, 0, 2]}

Option 1 postulates that both the `Commercial Paper` and `Certificate of Deposit` definitions are correct. However, `Certificate of Deposit` is not issued by the Reserve Bank, but by banks to individuals. Its term is usually basically short to medium, not long. Therefore, statement 2 is incorrect, making this option incorrect.

Option 2 suggests that statement 4 is correct. But `Zero-Coupon Bonds` are issued at a discount to face value and do not bear any interest. They are mostly long-term and not issued solely by Scheduled Commercial Banks to corporations. This makes statement 4 incorrect as well, invalidating this option.

Option 3 asserts that statements 1 and 3 are correct. The definitions for `Commercial Paper`, essentially a form of unsecured, short-term debt issued by corporations, and `Call Money`, referring to short-term funds that can be borrowed for usually a day by banks from other banks is indeed correct.

Option 4, like option 1, includes the incorrect statement 2 and also the incorrect statement 4, thus rendering it erroneous. Hence, option 3 is the correct answer.