Financial Markets

Economic Affairs

Title

45:30

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Indian Economy - Understanding the basics of Indian economic system

With reference to 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 transactions.
‘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?

This questions was previously asked in

UPSC CSP Previous Year Paper (2020)

1 and 2 only

4 only

1 and 3 only

2, 3 and 4 only

Statement 1 is correct: Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity.
Statement 2 is incorrect:Certificate of deposit is a short term debt instrument. A CD is issued by financial institutions and banks. Regulated by the Reserve Bank of India, a Certificate of Deposit is a type of money market instrument issued against the funds deposited by an investor with a bank in a dematerialized form for a specific period of time. CDs can only be issued to individuals, companies, fund houses, and such.
Statement 3 is correct: An interbank call money market is a short-term money market which allows for large financial institutions to borrow and lend money at interbank rates.
Statement 4 is incorrect: A zero-coupon 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.

Hence option 3rd is correct.