Match List-I (money market instruments) with List-II (their features):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Treasury bill | (I) | Issued during periods of tight liquidity |
| (B) | Commercial paper | (II) | Can be discounted with a bank before it matures |
| (C) | Certificate of deposit | (III) | Issued to meet the short-term requirement of funds of the Central Government |
| (D) | Commercial bill | (IV) | Issued to raise short-term funds at lower rates of interest than market rates |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A)-(III), (B)-(IV), (C)-(I), (D)-(II)
| List-I | List-II | Reason |
|---|---|---|
| (A) Treasury bill | (III) Issued to meet the short-term requirement of funds of the Central Government | The Reserve Bank of India issues treasury bills on behalf of the Central Government to meet its short-term needs. |
| (B) Commercial paper | (IV) Issued to raise short-term funds at lower rates of interest than market rates | Large and creditworthy companies issue it. Their strength lets them borrow below market rates. |
| (C) Certificate of deposit | (I) Issued during periods of tight liquidity | Banks issue certificates of deposit when deposits grow slowly but the demand for credit is high. |
| (D) Commercial bill | (II) Can be discounted with a bank before it matures | A seller who needs funds early can discount the bill with a bank before its due date. |
NCERT (Pre-rationalised Edition): “1. Treasury Bill: A Treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds. …” “2. Commercial Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates.” “4. Certificate of Deposit: Certificates of deposit (CD) are unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high. They help to mobilise a large amount of money for short periods.” “5. Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes liable to make payment on a specific date in future. The seller could wait till the specified date or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts it. On being accepted, the bill becomes a marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill matures.” |