Money Market — Set 1
Economics · मुद्रा बाजार · Questions 1–10 of 80
The money market is a market for short-term funds which deals in financial assets whose period of maturity is up to?
Correct Answer: D. One year
The money market is characterized by instruments with a maturity of one year or less. This ensures high liquidity for participants needing short-term cash. It differs from the capital market which deals in long-term debt and equity.
Which of the following is a key regulatory body for the organized money market in India?
Correct Answer: A. Reserve Bank of India
The Reserve Bank of India acts as the primary regulator of the Indian money market. It ensures price stability and adequate liquidity in the banking system. While SEBI regulates the capital market, RBI monitors short-term debt instruments.
Treasury Bills (T-Bills) are issued by which entity to manage short-term liquidity mismatches?
Correct Answer: B. Government of India
The Government of India issues Treasury Bills to meet its short-term financial requirements. These are considered risk-free as they are backed by a sovereign guarantee. They are currently issued in three tenors: 91 days, 182 days, and 364 days.
Which money market instrument is an unsecured promissory note issued by highly rated corporations?
Correct Answer: B. Commercial Paper
Commercial Paper is an unsecured short-term debt instrument issued by companies to raise funds. It was introduced in India in 1990 to provide highly rated corporates an alternative source of finance. The maturity usually ranges from 7 days to one year.
When funds are borrowed or lent for a single day in the money market, it is known as?
Correct Answer: A. Call Money
Call Money refers to inter-bank borrowing and lending for a period of 24 hours. It is highly liquid and sensitive to changes in the demand and supply of funds. Participants use it to meet temporary cash reserve requirements.
Borrowing or lending in the money market for a period between 2 days and 14 days is termed as?
Correct Answer: B. Notice Money
Notice Money is a short-term fund transaction where the tenure is more than one day but up to 14 days. If the period exceeds 14 days, it is classified as Term Money. Banks often use this to adjust their Statutory Liquidity Ratio (SLR).
Certificates of Deposit (CDs) are primarily issued by which of the following?
Correct Answer: A. Scheduled Commercial Banks
Scheduled Commercial Banks and select All-India Financial Institutions issue Certificates of Deposit. These are negotiable, dematerialized instruments for funds deposited with a bank. They are usually issued during periods of tight liquidity.
The minimum maturity period for a Commercial Paper (CP) in India is?
Correct Answer: B. 7 days
The Reserve Bank of India mandates a minimum maturity of 7 days for Commercial Papers. The maximum maturity allowed is up to one year from the date of issue. This instrument allows companies to diversify their short-term borrowing sources.
Which of the following is NOT a characteristic of money market instruments?
Correct Answer: A. High Risk of default
Money market instruments are generally characterized by low risk of default because they are issued by credible entities. They are highly liquid assets that can be converted to cash quickly. Their main function is to facilitate the efficient flow of short-term funds.
What is the minimum amount for which a Certificate of Deposit can be issued in India?
Correct Answer: A. Rs. 5 Lakh
According to RBI guidelines, Certificates of Deposit must be issued in denominations of Rs. 5 lakh or multiples thereof. This high minimum amount ensures that the market primarily consists of institutional investors. It helps banks mobilize large chunks of money for short durations.