Consider the following statements about the money market:
(A) The money market deals in monetary assets that are close substitutes for money.
(B) The money market deals in low risk, secured and short-term debt instruments.
(C) The money market has no physical location and is conducted over the telephone and through the internet.
(D) Depository participants are major participants in the money market.
(E) The money market enables the temporary deployment of excess funds for earning returns.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (C) and (E) only
(A) The money market deals in monetary assets that are close substitutes for money. — Correct. Its assets mature within one year and are close substitutes for money.
(B) The money market deals in low risk, secured and short-term debt instruments. — Incorrect. Money market instruments are low risk, but they are unsecured. No security is given against them.
(C) The money market has no physical location and is conducted over the telephone and through the internet. — Correct. The money market has no physical location. It works over the telephone and the internet.
(D) Depository participants are major participants in the money market. — Incorrect. Depository participants keep investors’ demat accounts for shares. They are not among the money market participants.
(E) The money market enables the temporary deployment of excess funds for earning returns. — Correct. Spare cash can be lent for a short time, so it allows the temporary deployment of excess funds.
NCERT (Pre-rationalised Edition): “MONEY MARKET The money market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday. It has no physical location, but is an activity conducted over the telephone and through the internet. It enables the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns. The major participants in the market are the Reserve Bank of India (RBI), Commercial Banks, Non-Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.” |