Three of the following are main instruments traded in the capital market. Which one is the odd one out?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Certificates of deposit
Option (1) Certificates of deposit — Not a capital market instrument. Certificates of deposit are short-term debt instruments issued by commercial banks and development financial institutions. They are traded in the money market.
Option (2) Preference shares — A capital market instrument. Preference shares raise long-term funds for a company and are traded in the capital market.
Option (3) Bonds — A capital market instrument. Bonds are long-term debt instruments traded in the capital market.
Option (4) Debentures — A capital market instrument. Debentures are medium and long term securities of companies, dealt in the capital market.
NCERT (Pre-rationalised Edition): “(ii) Instruments: The main instruments traded in the capital market are – equity shares, debentures, bonds, preference shares etc. The main instruments traded in the money market are short term debt instruments such as T-bills, trade bills reports, commercial paper and certificates of deposit.” “(iv) Duration: The capital market deals in medium and long term securities such as equity shares and debentures. Money market instruments have a maximum tenure of one year, and may even be issued for a single day.” |