Money Market — Set 3
Economics · मुद्रा बाजार · Questions 21–30 of 80
Which instrument provides a safe haven for short-term institutional investors with zero risk of default?
Correct Answer: B. Treasury Bills
Treasury Bills are sovereign debt, meaning they are guaranteed by the central government. This makes them the safest short-term investment option available. Investors accept lower yields in exchange for this absolute safety.
Who can issue Commercial Papers in India besides companies?
Correct Answer: D. Primary Dealers and All-India Financial Institutions
Besides highly rated companies, Primary Dealers and specified All-India Financial Institutions can issue CPs. They use these funds to meet their short-term funding gaps. It is a vital instrument for wholesale funding in the financial sector.
The interest rate on Call Money is determined by?
Correct Answer: C. Market forces of demand and supply
The call money rate is a market-driven interest rate that fluctuates throughout the day. It depends on the liquidity position of banks and the demand for overnight funds. RBI influences it indirectly through its policy rates like Repo.
A Certificate of Deposit is a 'negotiable' instrument. This means?
Correct Answer: D. It can be transferred from one person to another
A negotiable instrument can be legally transferred or traded in the secondary market. This provides liquidity to the investor who can sell the CD before its maturity. Transferability is a key feature that makes CDs attractive to corporate investors.
Which of the following is NOT an organized participant in the Indian Money Market?
Correct Answer: B. Chit Funds
Chit Funds belong to the unorganized or semi-organized sector and are not primary participants in the formal money market. Organized participants like banks and mutual funds are regulated by central authorities. The organized market follows standardized rules and interest rate structures.
When a bank borrows money from the RBI for more than 14 days, the rate applicable is usually the?
Correct Answer: C. Bank Rate
The Bank Rate is the standard rate at which RBI is prepared to buy or rediscount bills of exchange. It is generally used for long-term lending beyond the Repo window. Nowadays, it is aligned with the Marginal Standing Facility (MSF) rate.
Primary Dealers (PDs) are specialized institutions that deal mainly in?
Correct Answer: C. Government Securities and Money Market instruments
Primary Dealers act as market makers for government securities and money market products. They help the RBI in the successful auction of Treasury Bills and bonds. They provide liquidity by providing two-way quotes in the secondary market.
What is the maturity range for a Certificate of Deposit issued by a bank?
Correct Answer: C. 7 days to 1 year
CDs issued by banks must have a maturity between 7 days and one year. CDs issued by financial institutions can have a longer maturity of 1 to 3 years. This allows banks to manage their short-term resource requirements flexibly.
The 'Money Market Mutual Fund' (MMMF) was introduced in India to provide access to the money market for?
Correct Answer: B. Individual investors
MMMFs allow individual investors to participate in the high-denomination money market through a pooling mechanism. They invest in short-term instruments like T-Bills and CPs. This gives small savers a chance to earn market-linked returns with high liquidity.
Which instrument is also known as 'Ways and Means Advances' (WMA)?
Correct Answer: C. Short-term credit from RBI to Government
Ways and Means Advances is a facility where RBI provides temporary credit to the Central and State Governments. It helps them tide over temporary mismatches in their receipts and payments. It is not an instrument of borrowing from the public but an internal arrangement.