With reference of the Indian economy, consider the following statements: 1. ‘Commercial Paper’ is a short-term unsecured promissory note. 2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation. 3. ‘Call Money’ is a short-term finance used for interbank transitions. 4. ‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations. Which of the statements given above is/are correct?

QUESTION

Medium

Economy

Prelims 2020

With reference of the Indian economy, consider the following statements:

‘Commercial Paper’ is a short-term unsecured promissory note.
‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
‘Call Money’ is a short-term finance used for interbank transitions.
‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct?

Select an option to attempt

Explanation

The following statements are correct concerning the Indian economy:

Commercial Paper is a short-term unsecured promissory note. It's a money market instrument issued by companies to raise short-term funds.
Call Money is a short-term finance used for interbank transactions. Banks borrow or lend money from each other for overnight periods to meet their liquidity requirements.

Incorrect statements:

Certificate of Deposit is not issued by the Reserve Bank of India. It's a negotiable instrument issued by commercial banks to depositors for a fixed maturity period at a predetermined interest rate.
Zero-Coupon Bonds can be long-term or short-term, but they are not issued by Scheduled Commercial Banks. These bonds don't pay periodic interest, but are sold at a discount to their face value. The difference between the purchase price and the maturity value represents the return on investment.