Certificates of deposit are issued during periods of tight liquidity. They help to mobilise a ______ amount of money for ______ periods.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → large; short
Option (1) large; short — Correct. CDs are issued when the deposit growth of banks is slow but the demand for credit is high. Banks then need big sums quickly, and CDs help to mobilise a large amount of money for short periods.
Option (2) small; short — Incorrect. The period is right, but the amount is wrong. CDs mobilise a large amount of money.
Option (3) large; long — Incorrect. The amount is right, but CDs are short-term instruments, so the periods are short.
Option (4) small; long — Incorrect. Both parts are wrong. CDs mobilise a large amount for short periods.
NCERT (Pre-rationalised Edition): “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.” |