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Q40 (IAS/2020) Economy › Money, Banking & Inflation › Money market instruments Official Key

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 ?

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is Option 3 (1 and 3 only) based on the following analysis of the Money Market instruments:

  • Statement 1 is correct: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 to enable highly rated corporate borrowers to diversify their sources of short-term borrowings.
  • Statement 3 is correct: Call Money is a short-term finance repayable on demand, with a maturity period of one day. It is primarily used by banks to maintain their Cash Reserve Ratio (CRR) through interbank transactions.
  • Statement 2 is incorrect: A Certificate of Deposit (CD) is a short-term (not long-term) negotiable instrument. It is issued by Scheduled Commercial Banks and select All-India Financial Institutions, not directly by the RBI to corporations.
  • Statement 4 is incorrect: Zero-Coupon Bonds are issued at a discount to face value and redeemed at par; they do not bear periodic interest (coupons).
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Q. With reference to the Indian economy, consider the following statements : 1. 'Commercial Paper' is a short-term unsecured promissory note…
At a glance
Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 4.4/10 · 5.6/10
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Statement 1
In the Indian economy, is Commercial Paper a short-term unsecured promissory note?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > Commercial Paper > p. 261
Presence: 5/5
“• Commercial paper (CP) introduced during 1990, is a short-term money market instrument α issued as an unsecured promissory note and is privately placed. • Companies, Primary Dealers (PDs) and FIs can issue CPs to meet their short-term funds α requirement. • Maturity is minimum 7 days and maximum up to 1 year and amount is minimum m. ₹5 lakh or multiples thereof. It is necessary for the issuers to get their credit rating done.”
Why this source?
  • Explicitly describes Commercial Paper as a short-term money-market instrument issued as an unsecured promissory note.
  • Gives contextual issuance details (issuers, private placement) that align with CP being a short-term corporate funding tool.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 51
Presence: 5/5
“days. These are unsecured instruments. Participants include Commercial and Cooperative Banks, Primary Dealers (PDs), development finance institutions, insurance companies and select mutual funds. • Certificate of Deposits (CD): CDs are negotiable/tradable, unsecured money market instruments issued mostly by Scheduled Commercial Banks for a maturity period up to one year against funds deposited at the bank.• Commercial Paper (CP): CP is an unsecured money market instrument issued in the form of a promissory note (promise to pay in future). The maturity of a CP shall be between seven days to one year. NBFCs, development financial institutions (like NABARD, SIDBI etc.), cooperative societies, Govt. entities (PSUs) and other companies can issue CP to raise money in the money market.”
Why this source?
  • Defines CP as an unsecured money-market instrument issued in the form of a promissory note.
  • Specifies the maturity band (7 days to 1 year), reinforcing the short-term character of CP.
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Statement analysis

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Statement analysis

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Statement analysis

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Statement analysis

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Statement analysis

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