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
• **One year** = the money market deals in short-term instruments with maturity up to one year. • **Short-term** — ensures high liquidity for participants needing quick cash without locking funds long-term. • 💡 Wrong-option analysis: [Two years]: exceeds the one-year cap for money market instruments; [Ten years]: this is a long-term capital market horizon; [Five years]: also a long-term horizon, not money market.
Which of the following is a key regulatory body for the organized money market in India?
Correct Answer: A. Reserve Bank of India
• **Reserve Bank of India** = RBI is the primary regulator of India's organised money market. • **SEBI** — regulates only the capital (equity/long-term debt) market, not short-term money market instruments. • 💡 Wrong-option analysis: [PFRDA]: regulates pension funds, not the money market; [IRDAI]: regulates the insurance sector; [SEBI]: oversees capital market, not short-term instruments.
Treasury Bills (T-Bills) are issued by which entity to manage short-term liquidity mismatches?
Correct Answer: B. Government of India
• **Government of India** = the central government issues Treasury Bills to meet its short-term financial requirements. • **3 tenors: 91, 182, 364 days** — these are the only active T-bill durations currently auctioned by RBI. • 💡 Wrong-option analysis: [Municipal Corporations]: issue municipal bonds, not T-Bills; [Private Corporates]: issue Commercial Paper, not T-Bills; [Commercial Banks]: issue Certificates of Deposit, not T-Bills.
Which money market instrument is an unsecured promissory note issued by highly rated corporations?
Correct Answer: B. Commercial Paper
• **Commercial Paper** = an unsecured short-term promissory note issued by highly-rated corporations to raise working capital. • **1990** — the year CP was introduced in India to give top-rated corporates an alternate borrowing source. • 💡 Wrong-option analysis: [Certificate of Deposit]: issued by banks, not corporates; [Call Money]: inter-bank overnight borrowing, not a corporate instrument; [Treasury Bill]: issued by the government, not private companies.
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** = inter-bank borrowing and lending for exactly one day (24 hours). • **24 hours** — its overnight nature makes it the most liquid and volatile segment of the money market. • 💡 Wrong-option analysis: [Notice Money]: covers 2–14 days, not 1 day; [Ready Money]: not a recognised money market term; [Term Money]: covers periods from 15 days to one year.
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** = short-term inter-bank borrowing for a period of more than 1 day and up to 14 days. • **14 days** — any period beyond this is classified as Term Money, not Notice Money. • 💡 Wrong-option analysis: [Term Money]: applies for periods above 14 days to 1 year; [Call Money]: strictly overnight (1 day); [Overnight Money]: another name for Call Money, i.e., 1 day only.
Certificates of Deposit (CDs) are primarily issued by which of the following?
Correct Answer: A. Scheduled Commercial Banks
• **Scheduled Commercial Banks** = banks and select All-India Financial Institutions issue Certificates of Deposit. • **Dematerialised** — CDs are held in demat form, making them transferable in the secondary market. • 💡 Wrong-option analysis: [Stock Exchanges]: facilitate trading but do not issue CDs; [State Governments]: issue market borrowings, not CDs; [Central Government]: issues T-Bills and CMBs, not CDs.
The minimum maturity period for a Commercial Paper (CP) in India is?
Correct Answer: B. 7 days
• **7 days** = the minimum maturity prescribed by RBI for Commercial Papers issued in India. • **1 year (364 days)** — this is the maximum maturity allowed for a CP from the date of issue. • 💡 Wrong-option analysis: [30 days]: higher than the actual minimum, so incorrect; [15 days]: also above the 7-day minimum; [1 day]: below the minimum; CP minimum is 7 days.
Which of the following is NOT a characteristic of money market instruments?
Correct Answer: A. High Risk of default
• **High Risk of default** = this is NOT a characteristic of money market instruments; they have low default risk. • **Low default risk** — instruments like T-Bills (sovereign) and top-rated CPs carry minimal credit risk. • 💡 Wrong-option analysis: [Short-term maturity]: a genuine feature of money market instruments; [High Liquidity]: correct characteristic — these instruments convert to cash quickly; [Close substitute for money]: correct — they are called 'near money'.
What is the minimum amount for which a Certificate of Deposit can be issued in India?
Correct Answer: A. Rs. 5 Lakh
• **Rs. 5 lakh** = the minimum denomination for a Certificate of Deposit as per RBI guidelines. • **Multiples of Rs. 5 lakh** — the denomination rule restricts CDs to institutional and corporate investors. • 💡 Wrong-option analysis: [Rs. 10,000]: too small; RBI mandates Rs. 5 lakh minimum; [Rs. 1 lakh]: below the prescribed floor; [Rs. 1,000]: applicable to small savings instruments, not CDs.