Anek Ltd. issued a public offer to raise Rs. 70 lakh equity from primary market. In the process of floating the issue, it incurred certain expenses like brokerage, commission, printing of application, advertising etc. Identify the money market instrument that can be used for financing this cost.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Commercial paper
Option (1) Call money — Incorrect. It is short-term money repayable on demand, used by banks to borrow from each other for the cash reserve ratio.
Option (2) Treasury bill — Incorrect. It is issued by the Reserve Bank for the government. It is not used by a company for its floatation costs.
Option (3) Commercial paper — Correct. Funds raised through commercial paper are used to meet floatation costs (brokerage, commission, printing of applications, advertising). This is called bridge financing.
Option (4) Commercial bill — Incorrect. It is used to finance credit sales of firms, not the cost of issuing shares.
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. NCERT (Pre-rationalised Edition): “Example: Suppose a company needs long-term finance to buy some machinery. In order to raise the long term funds in the capital market the company will have to incur floatation costs (costs associated with floating of an issue are brokerage, commission, printing of applications and advertising etc.). Funds raised through commercial paper are used to meet the floatation costs. This is known as Bridge Financing.” |