Money Market — Set 1
Banking · मुद्रा बाजार · Questions 1–10 of 80
What is the maximum maturity period for an instrument to be traded in the Money Market?
Correct Answer: D. One year
The money market deals with short-term financial instruments. These instruments typically have a maturity of up to one year. This differentiates the money market from the capital market which deals with long-term funds.
Which of the following refers to borrowing and lending of funds for a period of exactly one day?
Correct Answer: C. Call Money
Call money is a short-term loan that is repaid on demand and has a maturity of one day. It is used by commercial banks to maintain their cash reserve ratio. Banks borrow from each other in this market to meet temporary liquidity shortages.
What is the duration of 'Notice Money' in the Indian money market?
Correct Answer: B. 2 to 14 days
Notice money involves the borrowing and lending of funds for a period between 2 to 14 days. Unlike call money, it does not require immediate repayment the next day. It is a key component of the inter-bank call money market.
Treasury Bills (T-Bills) are issued by the RBI on behalf of which entity?
Correct Answer: D. Central Government
Treasury Bills are short-term debt instruments used by the Central Government to meet its fiscal needs. They are issued in three tenures: 91 days, 182 days, and 364 days. They are considered risk-free as they are backed by the sovereign guarantee.
What is the minimum amount for which a Certificate of Deposit (CD) can be issued?
Correct Answer: B. Rs. 5 Lakhs
A Certificate of Deposit is a negotiable money market instrument issued in dematerialized form. It must be issued for a minimum amount of Rs. 5 lakhs. It is typically issued by scheduled commercial banks and select financial institutions.
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a ____.?
Correct Answer: B. Promissory Note
Commercial Paper is a short-term unsecured promissory note issued by highly rated companies. It was introduced in India in 1990 to provide a source of short-term funds for corporates. The maturity period of CP ranges from a minimum of 7 days to one year.
Which of the following is NOT a standard maturity period for Treasury Bills in India?
Correct Answer: A. 273 days
India currently issues Treasury Bills for three specific durations: 91, 182, and 364 days. There is no standard 273-day Treasury Bill in the current market framework. These bills are sold through auctions conducted by the Reserve Bank of India.
What is the minimum maturity period for which a Commercial Paper (CP) can be issued?
Correct Answer: B. 7 days
Commercial Paper must have a minimum maturity of 7 days from the date of issue. It is a tool used by large corporations to meet short-term liabilities. The maximum maturity for any CP is limited to one year.
Who is the primary regulator of the money market in India?
Correct Answer: A. RBI
The Reserve Bank of India (RBI) regulates and supervises the money market to ensure systemic liquidity. It uses various policy rates to influence the supply and cost of short-term funds. SEBI, by contrast, primarily regulates the capital and securities market.
Which instrument is used by banks to borrow funds from the RBI on an overnight basis by dipping into their SLR quota?
Correct Answer: C. MSF
Marginal Standing Facility (MSF) is a window for banks to borrow from the RBI in emergency situations. Banks can borrow overnight by providing government securities from their SLR portfolio. The MSF rate is usually higher than the standard Repo rate.