Money Market — Set 8

Correct Answer: B. Unorganized Money Market

• **Unorganised Money Market** = indigenous bankers and local moneylenders form the unorganised segment, operating outside RBI regulation. • **Rural and semi-urban** — they primarily serve areas where formal banking penetration is limited. • 💡 Wrong-option analysis: [Foreign Exchange Market]: deals in currency trading, separate from the money market; [Organised Money Market]: includes RBI-regulated entities; indigenous bankers are excluded; [Capital Market]: deals in equity and long-term debt, unrelated to indigenous banking.

Correct Answer: D. 1990

• **1990** = Commercial Paper was introduced in India in 1990, enabling top-rated corporates to diversify short-term borrowing. • **Promissory note** — CP is issued as a promissory note, an unsecured commitment to repay a specified amount at a specified date. • 💡 Wrong-option analysis: [2000]: a decade after the actual introduction year of 1990; [1980]: before CP's introduction; CPs did not exist in India in 1980; [2010]: the year Cash Management Bills were introduced, not CP.

Correct Answer: B. Shares and Debentures

• **Shares and Debentures** = these are capital market instruments meant for long-term investment and are NOT money market instruments. • **Short-term only** — T-Bills, CPs, and CDs are all short-term (under one year) debt instruments that qualify for the money market. • 💡 Wrong-option analysis: [Certificate of Deposit]: a short-term bank instrument, valid money market product; [Treasury Bills]: government short-term debt, definitive money market instrument; [Commercial Paper]: corporate short-term unsecured debt, valid money market instrument.

Correct Answer: D. Three

• **Three** = India currently issues Treasury Bills in exactly three standard tenors: 91 days, 182 days, and 364 days. • **Zero-coupon, auctioned by RBI** — all three are issued at a discount and auctioned regularly on behalf of the government. • 💡 Wrong-option analysis: [Two]: incorrect; three active tenors exist; [Five]: no such number of T-bill tenors; [Four]: incorrect; the 273-day T-bill was discontinued, leaving only three.

Correct Answer: C. Provide liquidity to money market instruments

• **Provide liquidity to money market instruments** = DFHI was established to develop a secondary market where short-term papers can be bought and sold. • **Secondary market development** — by making instruments tradeable, DFHI improved price discovery and liquidity for T-Bills and other short-term products. • 💡 Wrong-option analysis: [Regulate stock markets]: SEBI's function; [Print money]: the RBI's currency department; [Collect taxes]: the Income Tax Department and GST Council's function.

Correct Answer: A. Increases Repo rate

• **Increases Repo Rate** = when RBI wants to reduce money supply, it raises the repo rate, making bank borrowing more expensive. • **Credit contraction** — higher repo rate leads to higher bank lending rates, lower credit demand, reduced money supply, and inflation control. • 💡 Wrong-option analysis: [Buys government securities]: OMO purchases inject liquidity, which would increase money supply, the opposite effect; [Decreases Cash Reserve Ratio]: lower CRR frees up bank funds, increasing money supply; [Decreases Repo rate]: a lower repo rate cheapens borrowing and expands money supply.

Correct Answer: A. Rs. 5 Lakh

• **Rs. 5 lakh** = the minimum denomination for issuing Commercial Paper in India. • **Wholesale instrument** — the high minimum ensures CP remains a market for banks, mutual funds, and large corporates, not retail investors. • 💡 Wrong-option analysis: [Rs. 10 lakh]: above the actual minimum; the RBI floor is Rs. 5 lakh; [Rs. 50 lakh]: far above the minimum; [Rs. 1 lakh]: below the prescribed minimum of Rs. 5 lakh.

Correct Answer: B. Certificate of Deposit

• **Certificate of Deposit** = a CD is a short-term negotiable bank obligation that can be sold in the secondary market before maturity. • **Unlike Fixed Deposit** — an FD cannot be transferred; a CD can be traded, providing the investor an early exit option. • 💡 Wrong-option analysis: [Saving Bond]: a long-term government retail instrument, not tradeable in money markets; [Commercial Paper]: issued by corporates, not banks; [Fixed Deposit]: non-negotiable; cannot be sold in a secondary market.

Correct Answer: D. The Government

• **The Government** = Ways and Means Advances are provided by RBI to Central and State governments to cover temporary receipts–payments mismatches. • **Short-term internal credit** — WMA is repaid once government revenues arrive; it is not a long-term borrowing instrument. • 💡 Wrong-option analysis: [International Monetary Fund]: an international body; WMA is a domestic RBI–Government arrangement; [Commercial Banks]: they borrow from RBI through Repo, not WMA; [General Public]: the public accesses government schemes, not WMA.

Correct Answer: A. More than 14 days up to one year

• **More than 14 days up to one year** = Term Money describes inter-bank borrowing for a period between 15 days and one year. • **Higher rates** — Term Money rates are generally above Call Money rates due to the longer commitment period. • 💡 Wrong-option analysis: [More than 5 years]: far beyond the one-year money market cap; [1 day]: the definition of Call Money; [Up to 14 days]: this covers both Call Money (1 day) and Notice Money (2–14 days), not Term Money.