An instrument of short-term finance repayable on demand, with a maturity period of one to fifteen days, used for interbank transactions.
Identify the money market instrument from this statement.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Call Money
Option (1) Treasury Bill — Incorrect. A treasury bill is short-term borrowing by the Government of India, issued through the RBI. It matures in less than one year. It is not a loan from one bank to another.
Option (2) Commercial Paper — Incorrect. Commercial paper is an unsecured promissory note issued by large companies with a good credit rating. It runs from 15 days to one year. The borrower is a company, not a bank.
Option (3) Call Money — Correct. Call money is borrowing between banks. It is repayable on demand and runs from one day to fifteen days. Banks use it to keep up the minimum cash balance, called the cash reserve ratio, that the RBI asks them to hold.
Option (4) Commercial Bill — Incorrect. A commercial bill is a bill of exchange that business firms use to finance their working capital. It arises from trade between a seller and a buyer, not from lending between banks.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. Call money comes back on demand, and so did this chapter, the day NTA asked for it.
NCERT (Pre-rationalised Edition):
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