Question
With reference to the Indian economy consider the following statements?
1. ‘Commercial paper’ is short term Unsecure 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 short-term finance used for interbank transaction.
4. “Zero coupons bonds are the interest-bearing short-term bonds issued by the Scheduled Commercial Bank to corporation.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 4 only
(c) 1 and 3 only
(d) 2, 3 and 4 only
Answer:
C
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Explanation:
1. Statement 1 is correct. 'Commercial paper' is indeed a short-term unsecured promissory note issued by corporations to meet their short-term funding requirements.
2. Statement 2 is incorrect. 'Certificate of Deposit' (CD) is a short-term instrument issued by banks and financial institutions, not by the Reserve Bank of India (RBI). It is a time deposit with a specified maturity date and carries a fixed interest rate.
3. Statement 3 is correct. 'Call Money' refers to short-term finance used for interbank transactions. It is a market for short-term funds where banks borrow and lend money to each other for very short durations.
4. Statement 4 is incorrect. 'Zero-coupon bonds' are not interest-bearing short-term bonds issued by scheduled commercial banks to corporations. Zero-coupon bonds are bonds that are issued at a discount to their face value and do not pay periodic interest. The return to the investor is earned through the difference between the purchase price and the face value upon maturity.