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? 

(a) 1 and 2 only 

(b) 4 only 

(c) 1 and 3 only 

(d) 2, 3, and 4 only 

Answer: c

Explanation:

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP, as a privately placed instrument with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

Corporates, primary dealers (PDs) and all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.

Hence, statement 1 is correct.

Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form against funds deposited at a bank or other eligible financial institution for a specified time period. 

CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

Hence, statement 2 is incorrect.

The call/notice money market forms an important segment of the Indian Money Market. Under call money market, funds are transacted on overnight basis and under notice money market, funds are transacted for the period between 2 days and 14 days.

Hence, statement 3 is correct.

Zero Coupon Bonds – Zero coupon bonds are bonds with no coupon/ interest payments. Treasury bills are zero coupon securities and pay no interest

Hence, statement 4 is incorrect.

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