Question
Q80. With reference to 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 transactions.
4. ‘Zero-Coupon Bonds’ are the interest-bearing short-term bonds issued by the Scheduled Commercial Bank to corporations.
Which of the statements given above are correct?
A. 1 and 2 only
B. 4 only
C. 1 and 3 only
D. 2, 3 and 4 only
Answer: C
Detailed Explanation
Certificate of Deposit
• A certificate of Deposit (CD) is an electronic short-term negotiable money market instrument to be held with a SEBI-registered (Securities and Exchange Board of India) depository.
• A negotiable instrument guarantees the repayment of the principal amount along with interest at the pre-specified rate.
• CDs are governed by the RBI and issued by authorized banks against the funds deposited by an investor.
Commercial paper
• Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year.
• It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India for the first time in 1990.
• Call money rate is the rate at which short term funds are borrowed and lent in the money market among banks on a day-today basis. Banks resort to this type of loan to fill the asset liability mismatch, comply with the statutory CRR and SLR requirements and to meet the sudden demand of funds.
• A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.
