Money Market — Set 4
Economics · मुद्रा बाजार · Questions 31–40 of 80
The organized money market in India does NOT include?
Correct Answer: C. Indigenous Bankers
Indigenous bankers are private firms or individuals who act as banks but are part of the unorganized sector. They lack formal regulation and standardization found in commercial banks. Organized sector includes RBI, banks, and primary dealers.
In a 'Repo' transaction, the borrowing bank pays interest to the RBI, which is called the?
Correct Answer: B. Repo Rate
The Repo Rate is the interest rate at which the RBI lends money to commercial banks against securities. It is the most important policy rate used to control inflation. When the Repo rate is high, borrowing becomes expensive for banks.
Which of the following tenors is NOT a standard duration for Indian Treasury Bills?
Correct Answer: D. 14 days
Currently, the standard tenors for Treasury Bills in India are 91, 182, and 364 days. The 14-day and 273-day T-bills were discontinued years ago. 91-day T-bills are auctioned every week by the RBI.
The Discount and Finance House of India (DFHI) was established following the recommendations of which committee?
Correct Answer: B. Vaghul Committee
The Vaghul Committee on the money market recommended the setting up of DFHI in 1988. It was intended to impart liquidity to money market instruments and integrate the various segments. This move significantly improved the secondary market for short-term papers.
Marginal Standing Facility (MSF) is a window for banks to borrow from RBI for?
Correct Answer: C. Overnight emergency needs
MSF allows banks to borrow overnight funds from RBI against their SLR portfolio. It is used when inter-bank liquidity is completely exhausted. The MSF rate is generally higher than the Repo rate to discourage frequent use.
Commercial Paper (CP) is issued in multiples of?
Correct Answer: B. Rs. 5 Lakh
CP is issued in denominations of Rs. 5 lakh or multiples thereof. This is consistent with other wholesale money market instruments like CDs. It ensures that the market stays limited to corporate and institutional players.
A high 'Call Money Rate' usually indicates?
Correct Answer: B. Tight liquidity condition in the market
When the supply of funds is low and demand from banks is high, the call money rate spikes. This signals that the banking system is facing a liquidity crunch. RBI may intervene by injecting liquidity through Repo auctions.
Which of the following can be converted into cash the fastest with minimum loss of value?
Correct Answer: D. Money Market Instruments
Money market instruments are highly liquid and often referred to as 'near-money'. They can be sold or redeemed almost instantly with very low transaction costs. Their short maturity minimizes the risk of price fluctuation.
Treasury Bills are auctioned by the Reserve Bank of India on behalf of?
Correct Answer: D. The Central Government
Only the Central Government of India issues Treasury Bills. State governments do not issue T-bills; they meet their short-term needs through 'Ways and Means Advances' or market loans. T-bills are a critical part of the Central Government's internal debt.
The term 'Wholesale Market' is often used for the money market because?
Correct Answer: C. The transaction sizes are very large
Money market transactions involve huge sums of money, often in crores of rupees. It is dominated by large financial institutions, banks, and corporations rather than individual retail savers. The large ticket size makes it a wholesale market for currency.