Mr. Rehan has done a diploma in Financial market and its participants. Recently he got a chance to present his knowledge and train students in a school. He told students about various money market instruments. He mentioned about an instrument which is issued by R.B.I on behalf of Central Government. He told students that Banks use a system to borrow money (an instrument) to manage their CRR i.e Cash Reserve Ratio. Later. he mentioned a short term self liquidating instrument like Bills of Exchange that can be used for arranging working capital. He also told students about an instrument that helps to mobilise large amounts of money in short period by commercial banks. Lastly, Mr. Rehan spoke about an instrument that works as a replacement towards bank borrowing for large credit-worthy companies, its maturity period is 15 days to one year.

"An instrument that works as a replacement towards bank borrowing for large Credit-worthy companies, its maturity period is 15 days to one year".

Identify the money market instrument stated in the above lines.

Commercial papers

The correct answer is option (2) : Commercial papers

The money market instrument described in the statement, which acts as a replacement for bank borrowing for large credit-worthy companies with a maturity period of 15 days to one year, is:

Commercial papers

Call Money:

•Call money is a short-term money market instrument where banks and financial institutions lend or borrow funds from each other for very short periods, often overnight. It is primarily used for managing day-to-day liquidity and meeting statutory reserve requirements. Call money transactions typically have very short maturities, usually ranging from one day to a week.

Commercial Bills :

• Commercial bills, also known as bills of exchange, are short-term financial instruments used in trade and commerce. They are essentially promissory notes where one party agrees to pay a specified amount to another party at a future date. Commercial bills can be used to raise short-term funds and facilitate trade transactions.

Certificate of Deposit (CD):

• A Certificate of Deposit is a time deposit offered by banks and financial institutions with a fixed maturity date, typically ranging from a few months to several years. They are a form of interest-bearing savings account, and they cannot be withdrawn before the maturity date without incurring a penalty. CDs are not generally used as a replacement for bank borrowing by large companies but are more commonly used by individuals and institutions for investment and savings.