Money Market — Set 7
Banking · मुद्रा बाजार · Questions 61–70 of 80
What is the full form of 'Repo' in banking?
Correct Answer: B. Repurchase Agreement
Repo stands for Repurchase Agreement. It is a short-term borrowing tool where an entity sells securities and agrees to buy them back later at a higher price. The difference in price represents the interest cost.
What is the maximum duration for a loan to be classified as 'Notice Money'?
Correct Answer: D. 14 days
Notice money is a loan for a period ranging from 2 days to 14 days. If the money is borrowed for only one day, it is called call money. If it is for more than 14 days, it is term money.
Which of these is a 'Discounted' money market instrument?
Correct Answer: B. T-Bills
Treasury Bills do not pay regular interest but are issued at a discount to their face value. The return is the difference between the issue price and the maturity value. Commercial Paper and Certificates of Deposit also follow this discounted issuance model.
What is the 'Floor Rate' in an interest rate corridor?
Correct Answer: A. Minimum rate
The floor rate is the lowest interest rate in the policy corridor, currently the SDF rate. It is the rate at which the central bank is willing to absorb all surplus liquidity. It prevents the market interest rates from falling too low.
What does 'CD' stand for in money market terminology?
Correct Answer: D. Certificate of Deposit
CD stands for Certificate of Deposit. It is a negotiable money market instrument issued by banks against funds deposited with them. Unlike regular fixed deposits, CDs are highly liquid and can be traded in the secondary market.
Which rate is used as the 'benchmark' for pricing short-term loans in India?
Correct Answer: C. MIBOR
MIBOR (Mumbai Inter-Bank Offered Rate) is the primary benchmark for the overnight inter-bank market. It reflects the cost of short-term funds among banks. Many derivative contracts and floating-rate loans are linked to this benchmark.
What is the tenure of the 'Short-term' financial market?
Correct Answer: B. Less than 1 year
The short-term financial market, known as the money market, deals with assets having a maturity of less than a year. It provides a mechanism for balancing short-term surplus and deficit of funds. Capital markets deal with tenures exceeding one year.
In 'CRR', what does the 'R' stand for?
Correct Answer: D. Ratio
CRR stands for Cash Reserve Ratio. It is the specific percentage of total deposits that banks must keep as cash with the RBI. The 'Ratio' signifies the mathematical relationship between reserves and total liabilities.
What is the 'Face Value' of a T-Bill?
Correct Answer: B. Maturity value
The face value is the nominal value that the government promises to pay back at maturity. T-bills are always sold for less than this value. The difference between the purchase price and the face value is the investor's profit.
What is 'Overnight' borrowing?
Correct Answer: C. Loan for 24 hours
The correct answer is 'Loan for 24 hours'. Overnight borrowing refers to funds borrowed today and repaid on the next working day. It is the core of the call money market. Banks use this to adjust their daily cash balances to meet statutory requirements.