Given below are two statements:
Assertion (A): Certificates of deposit can be issued to individuals, corporations and companies.
Reason (R): Certificates of deposit are issued by large and creditworthy companies.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) is true but (R) is false.
Assertion (A): Certificates of deposit can be issued to individuals, corporations and companies. — True. CDs can be issued to them during periods of tight liquidity, when the deposit growth of banks is slow but the demand for credit is high.
Reason (R): Certificates of deposit are issued by large and creditworthy companies. — False. CDs are issued by commercial banks and development financial institutions. Large and creditworthy companies issue commercial paper.
NCERT (Pre-rationalised Edition): “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.” |