Question 1

The money market is a market for short-term funds which deals in financial assets whose period of maturity is up to?

Accepted Answer

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.

Question 2

Which of the following is a key regulatory body for the organized money market in India?

Accepted Answer

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.

Question 3

Treasury Bills (T-Bills) are issued by which entity to manage short-term liquidity mismatches?

Accepted Answer

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.

Question 4

Which money market instrument is an unsecured promissory note issued by highly rated corporations?

Accepted Answer

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.

Question 5

When funds are borrowed or lent for a single day in the money market, it is known as?

Accepted Answer

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.

Money Market — Set 1