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Q40 (IAS/2024) Economy › Money, Banking & Inflation › Money market instruments Official Key

With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of :

Result
Your answer: —  ·  Correct: C
Explanation

Collateralized Borrowing and Lending Obligations (CBLO) are money market instruments[1], which are part of the financial market segment dealing with short-term debt securities.

The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities (less than one year) are traded[1]. Money market instruments are basically debt instruments and include Call/Notice money, Repos, Treasury Bills, Cash Management Bills, Commercial Paper, Certificate of Deposits and Collateralized Borrowing and Lending Obligations (CBLO)[1].

CBLO is specifically designed for short-term borrowing and lending operations among financial institutions and is not used in bond markets (long-term), forex markets (currency trading), or stock markets (equity trading). Therefore, option C (Money market) is the correct answer.

Sources
  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
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PROVENANCE & STUDY PATTERN
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of : [A] Bond market [B] Forex…
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10

This is a textbook 'Sitter'. It validates the strategy of memorizing the taxonomy of financial markets. If you simply listed the instruments under 'Money Market' vs 'Capital Market' in your notes, this was a 5-second kill.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
In the context of the Indian economy, which market uses Collateral Borrowing and Lending Obligations (CBLO) as instruments?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
Presence: 5/5
“Money Market: A segment of the financial market in which financial instruments with high liquidity and very short maturities (less than one year) are traded. Money market instruments are basically debt instruments and include Call/Notice money, Repos, Treasury Bills, Cash Management Bills, Commercial Paper, Certificate of Deposits and Collateralized Borrowing and Lending Obligations (CBLO). The players who can trade in the money market are financial institutions, commercial banks, central banks and highly rated corporates. These markets are less risky. Money Market transactions can also be classified as primary and secondary. • Call/Notice Money: In call money, funds are transacted for overnight basis and under notice money; funds are transacted for the period between 2 days and 14”
Why this source?
  • Explicitly lists Collateralized Borrowing and Lending Obligations (CBLO) among money market instruments.
  • Defines the money market as the segment where high-liquidity, very short-maturity (less than one year) debt instruments are traded, directly situating CBLO within that market.
Pattern takeaway: UPSC Economy is moving towards 'Term Identification'. They pick a specific financial instrument and ask 'Where does this belong?'. The preparation shift is to focus on the *structure* of markets rather than just current affairs trends.
How you should have studied
  1. [THE VERDICT]: Sitter. Direct hit from standard Economy texts (Vivek Singh/Ramesh Singh) under the 'Financial Markets' chapter.
  2. [THE CONCEPTUAL TRIGGER]: The classification of Financial Markets into Money Market (Short term, <1 year) vs. Capital Market (Long term, >1 year).
  3. [THE HORIZONTAL EXPANSION]: Memorize the full Money Market roster: Call Money, Notice Money, Term Money, Treasury Bills (T-Bills), Cash Management Bills (CMBs), Commercial Paper (CP), Certificates of Deposit (CD), and Repos. *Crucial Update*: CBLO has been largely replaced by TREPS (Tri-party Repo).
  4. [THE STRATEGIC METACOGNITION]: Economy questions often test 'Categorization'. Don't just read definitions; create binary tables. Is it Money or Capital? Is it Debt or Equity? Is it Revenue or Capital Budget?
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Money market — definition and role
💡 The insight

The money market is the marketplace for high-liquidity, short-maturity (under one year) debt instruments, which is the category that includes CBLO.

Highly tested: questions often ask to distinguish money market from capital market and to identify where short-term instruments trade. Mastering this clarifies RBI liquidity operations, short-term government borrowing, and instrument classification.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
🔗 Anchor: "In the context of the Indian economy, which market uses Collateral Borrowing and..."
📌 Adjacent topic to master
S1
👉 Common money market instruments (CBLO, T-bills, CP, CDs, Repos)
💡 The insight

CBLO is one of the standard short-term debt instruments alongside Treasury Bills, Commercial Paper, Certificates of Deposit and Repos used in the money market.

High-yield: many UPSC items ask to match instruments with markets or to explain features (maturity, security, issuers). Knowing the instrument set helps answer direct identification and comparative questions across finance topics.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 51
🔗 Anchor: "In the context of the Indian economy, which market uses Collateral Borrowing and..."
📌 Adjacent topic to master
S1
👉 Market participants in the money market
💡 The insight

Participants such as commercial banks, financial institutions, central bank and highly rated corporates trade instruments like CBLO in the money market.

Important for questions on market functioning and policy impact: understanding who trades in the money market links to topics on liquidity management, interbank borrowing, and transmission of monetary policy; it enables answering scenario-based questions about market reactions.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 51
🔗 Anchor: "In the context of the Indian economy, which market uses Collateral Borrowing and..."
🌑 The Hidden Trap

TREPS (Tri-party Repo Dealing System). Since CBLO has been discontinued and replaced by TREPS by the CCIL/RBI, the next logical question is on the features of TREPS or 'Cash Management Bills' (issued for maturities less than 91 days).

⚡ Elimination Cheat Code

Linguistic Logic: The term 'Borrowing and Lending' suggests a transaction of funds for liquidity management, which is the core function of the Money Market. The Stock Market is for 'Trading Ownership/Equity', and the Bond Market is generally for 'Long-term Investment'. 'Borrowing/Lending' = Short term = Money Market.

🔗 Mains Connection

Mains GS-3 (Mobilization of Resources): A deep Money Market is essential for the effective transmission of Monetary Policy. If CBLO/TREPS rates are volatile, RBI's repo rate changes won't reach the broader economy effectively.

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