Banking Terms — Set 1
Economics · बैंकिंग शब्दावली · Questions 1–10 of 120
What is the maximum maturity period for instruments 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 period of up to one year. Capital markets, by contrast, deal with long-term debt and equity.
Which of the following is the primary regulator of the Money Market in India?
Correct Answer: D. RBI
The Reserve Bank of India regulates the activities and participants of the money market. It ensures liquidity and stability within the financial system. SEBI primarily regulates the capital and securities market.
What is 'Call Money' in the context of banking?
Correct Answer: C. Overnight loan
Call money refers to borrowing or lending funds for a period of exactly one day. It is used by commercial banks to maintain their cash reserve ratio requirements. If the loan is for 2 to 14 days, it is known as notice money.
Treasury Bills (T-Bills) are issued by the RBI on behalf of whom?
Correct Answer: D. Central Government
Treasury Bills are short-term debt instruments issued by the Government of India. They are used to meet the government's short-term liquidity requirements. They are considered risk-free as they are backed by a sovereign guarantee.
What is the minimum denomination for which a Certificate of Deposit (CD) can be issued?
Correct Answer: A. Rs. 5 Lakhs
Certificates of Deposit must be issued for a minimum amount of Rs. 5 lakhs. They are negotiable money market instruments issued by scheduled commercial banks. They are issued in dematerialized form or as a usable promissory note.
Which instrument is used by large creditworthy corporations to meet short-term working capital needs?
Correct Answer: B. Commercial Paper
Commercial Paper is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 to provide highly rated corporates an additional funding source. The maturity period ranges from a minimum of 7 days to one year.
Commercial Paper (CP) is typically issued at what price?
Correct Answer: A. Discount to face value
Commercial Paper is issued at a discount to its face value and redeemed at face value. The difference between the issue price and the face value constitutes the interest. It is a common practice for most short-term zero-coupon instruments.
What is the duration of 'Notice Money' in the Indian money market?
Correct Answer: D. 2 to 14 days
Notice money refers to funds borrowed or lent for a period between 2 and 14 days. It is a sub-segment of the inter-bank call money market. No collateral is required for these transactions between banks.
Which of the following is NOT a standard maturity period for Treasury Bills in India?
Correct Answer: B. 273 days
India currently issues Treasury Bills for three specific tenures: 91 days, 182 days, and 364 days. There is no standard 273-day Treasury Bill issued by the government. These bills are sold through auctions conducted by the RBI.
A 'Ways and Means Advance' (WMA) is a facility provided by RBI to whom?
Correct Answer: C. Central and State Governments
WMA is a mechanism to provide temporary advances to governments to bridge the gap between receipts and payments. The government must repay this amount within three months. It helps in managing the mismatch in the cash flow of the government.