The money market enables the raising of short-term funds for meeting the temporary shortages of ______ (I). It also enables the temporary deployment of excess funds for earning ______ (II).
Choose the correct pair from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (I) cash, (II) returns
Option (1) (I) cash, (II) dividends — Incorrect. (I) is right, but dividends are paid on shares, a capital market instrument. Money market instruments are short-term debt, so they earn returns.
Option (2) (I) cash, (II) returns — Correct. The money market lets firms raise short-term funds to meet a temporary shortage of cash. It also lets them lend spare cash for a short time to earn returns.
Option (3) (I) capital, (II) dividends — Incorrect. Both words are wrong. Long-term capital is raised in the capital market, and dividends belong to shares.
Option (4) (I) capital, (II) returns — Incorrect. (II) is right, but the money market meets temporary shortages of cash. Long-term capital comes from the capital market.
NCERT (Pre-rationalised Edition): “MONEY MARKET The money market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday. It has no physical location, but is an activity conducted over the telephone and through the internet. It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns. …” |