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 Banks to corporations.

Which of the statements given above is/are correct?

[UPSC Civil Services Exam – 2020 Prelims]

(a) 1 and 2 only

(b) 4 only

(c) 1 and 3 only

(d) 2, 3 and 4 only

Answer: (c)        

Explanation:

Short term financial instruments are –

• Call money
• Treasury Bill
• Commercial Paper
• Deposit Certificates
• Trade bill
• Hence 1 is true and 2 is false.

Long term financial instruments are-

• Security Market- Equity, Debt, IPOs, Commodity Markets etc. Hence 4 is incorrect.
• Non-Securit Market – Mutual Funds, Fixed Deposits, Saving Deposits etc.

Call money deals with day to day cash requirement of banks. Its is a short-term financial instrument. Hence 3 is correct.