Banking Terms — Set 1

Correct Answer: D. One year

• **One year** = the maximum maturity period for instruments in the Money Market. • **Under 1 year** — this short tenure distinguishes money market from capital market, which deals with long-term funds exceeding one year. • 💡 Wrong-option analysis: [Five years]: far beyond the money market limit; [Ten years]: a typical long-term bond tenure; [Two years]: still above the one-year ceiling for money market instruments.

Correct Answer: D. RBI

• **RBI (Reserve Bank of India)** = the primary regulator of the Money Market in India. • **Monetary Policy** — RBI uses money market regulation to control liquidity and maintain financial stability across the banking system. • 💡 Wrong-option analysis: [PFRDA]: regulates pension funds, not the money market; [IRDAI]: regulates the insurance sector; [SEBI]: regulates the capital and securities market, not the money market.

Correct Answer: C. Overnight loan

• **Overnight loan** = Call Money is funds borrowed or lent for exactly one day between commercial banks. • **1 day** — if the period extends to 2–14 days, the instrument is classified as 'Notice Money', not Call Money. • 💡 Wrong-option analysis: [Long term loan]: money market is for short-term only; [Loan for 1 to 14 days]: that range describes Notice Money; [Loan for more than 14 days]: that is Term Money.

Correct Answer: D. Central Government

• **Central Government** = Treasury Bills are short-term debt instruments issued on behalf of the Government of India. • **Risk-free** — T-Bills carry sovereign guarantee, making them the safest instrument in the money market. • 💡 Wrong-option analysis: [Public Sector Banks]: banks borrow through CDs, not T-Bills; [Corporate Houses]: corporates issue Commercial Paper; [State Governments]: state governments use Ways and Means Advances, not T-Bills.

Correct Answer: A. Rs. 5 Lakhs

• **Rs. 5 Lakhs** = the minimum denomination for a Certificate of Deposit issued by scheduled commercial banks. • **Negotiable** — CDs are issued in dematerialised form and can be traded in the secondary market before maturity. • 💡 Wrong-option analysis: [Rs. 50,000]: too low; the RBI minimum is Rs. 5 lakhs; [Rs. 1 Lakh]: also below the prescribed minimum; [Rs. 10 Lakhs]: this exceeds the minimum but is not the correct minimum figure.

Correct Answer: B. Commercial Paper

• **Commercial Paper** = an unsecured money market instrument used by large creditworthy corporations to meet short-term working capital needs. • **1990** — CP was introduced in India in 1990, with maturity ranging from 7 days to one year. • 💡 Wrong-option analysis: [Notice Money]: an inter-bank instrument, not issued by corporations; [Treasury Bills]: issued by the government, not corporates; [Certificates of Deposit]: issued by banks to raise funds, not by corporations.

Correct Answer: A. Discount to face value

• **Discount to face value** = Commercial Paper is issued below its face value and redeemed at the full face value at maturity. • **Zero-coupon** — the difference between issue price and face value is the investor's return; no periodic interest is paid. • 💡 Wrong-option analysis: [Market determined price]: CP has a fixed discount structure, not a market price at issuance like equity; [Face Value]: it is redeemed at face value, not issued at face value; [Premium over face value]: no debt instrument is issued at a premium to generate investor profit.

Correct Answer: D. 2 to 14 days

• **2 to 14 days** = the duration of Notice Money in the Indian money market, bridging overnight and term borrowing. • **No collateral** — Notice Money transactions between banks are unsecured, relying on mutual creditworthiness. • 💡 Wrong-option analysis: [15 to 30 days]: that falls in the Term Money segment; [1 day]: one-day funds are classified as Call Money; [30 to 365 days]: that range belongs to Term Money or CD tenures.

Correct Answer: B. 273 days

• **273 days** = NOT a standard Treasury Bill maturity; India only issues 91-day, 182-day, and 364-day T-Bills. • **3 standard tenures** — 91, 182, and 364 days are the only officially issued T-Bill maturities, sold through weekly RBI auctions. • 💡 Wrong-option analysis: [364 days]: a valid T-Bill tenure; [182 days]: a valid T-Bill tenure; [91 days]: the shortest valid T-Bill tenure.

Correct Answer: C. Central and State Governments

• **Central and State Governments** = Ways and Means Advance (WMA) is a temporary facility provided by RBI to bridge government revenue-expenditure gaps. • **3 months** — the government must repay WMA within three months; it is not a long-term borrowing tool. • 💡 Wrong-option analysis: [Commercial Banks]: banks use Repo/MSF for short-term funds from RBI; [Foreign Investors]: WMA is strictly for domestic government cash flow; [General Public]: the public has no access to WMA.