Banking Terms — Set 2
Economics · बैंकिंग शब्दावली · Questions 11–20 of 120
What is the maximum tenure for which a Commercial Paper (CP) can be issued?
Correct Answer: C. One year
Commercial Paper can be issued for a maturity period ranging from 7 days up to one year. It cannot exceed a one-year tenure as it is a money market instrument. The issuance must be within the validity period of the credit rating.
Which of these is a 'secured' money market instrument?
Correct Answer: C. REPO
REPO stands for Repurchase Agreement, which involves the sale of securities with an agreement to buy them back later. The underlying securities act as collateral, making it a secured form of borrowing. Most other inter-bank instruments like call money are unsecured.
What does 'MIBOR' stand for in the context of the Indian money market?
Correct Answer: A. Mumbai Inter-Bank Offered Rate
MIBOR is the benchmark interest rate at which banks can borrow funds from other banks in the Mumbai inter-bank market. It is calculated everyday by the National Stock Exchange. It is patterned after the London Inter-Bank Offered Rate (LIBOR).
Who are the major participants in the 'Call Money' market?
Correct Answer: A. Commercial Banks
Commercial banks and primary dealers are the main participants who can both borrow and lend in the call money market. Insurance companies and mutual funds were allowed earlier but are now largely restricted. It is an essential tool for banks to manage their daily cash balances.
Which organization provides clearing and settlement services for money market instruments in India?
Correct Answer: B. CCIL
The Clearing Corporation of India Limited (CCIL) provides a guaranteed settlement for government securities and money market instruments. It reduces counterparty risk for market participants. It was established in 2001 to improve the efficiency of the financial market.
What is the minimum maturity period for a Certificate of Deposit (CD) issued by banks?
Correct Answer: A. 7 days
Banks can issue Certificates of Deposit with a minimum maturity period of 7 days. For financial institutions, the minimum maturity period is usually one year. The maximum maturity for a CD issued by a bank is one year.
Which of the following describes a 'Commercial Bill'?
Correct Answer: D. Negotiable instrument for trade
A commercial bill is a bill of exchange used to finance the movement of goods. It is a written instrument containing an unconditional order to pay a certain amount of money. When accepted by a bank, it becomes a bank-accepted bill.
Cash Management Bills (CMBs) have a maturity period of less than how many days?
Correct Answer: B. 91 days
Cash Management Bills are short-term instruments issued by the RBI to meet temporary mismatches in the government's cash flow. They have a maturity period of less than 91 days. They were introduced in India in 2010.
In a 'Reverse Repo' transaction, what does the RBI do?
Correct Answer: D. Absorbs liquidity from banks
Reverse Repo is the rate at which banks park their excess funds with the RBI. It is used as a tool to absorb excess liquidity from the banking system. When the reverse repo rate increases, it encourages banks to lend less to the public.
What is the primary difference between a Money Market and a Capital Market?
Correct Answer: B. Maturity of instruments
The key distinction is based on the tenure of the financial instruments. Money markets deal with short-term funds (under one year), while capital markets deal with long-term funds (over one year). Both markets are essential components of a country's financial system.