Mr. A wants to invest an amount he gained as surplus profit from his business in the money market. Suggest him which of the following is not an appropriate option for investment?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A five year government bond issued by State Government
Option (1) A five year government bond issued by State Government — Not a money-market investment (Correct). The money market deals in funds borrowed and lent for up to one year. Five years is far beyond that, so this bond belongs to the capital market.
Option (2) A Zero Coupon Bond issued by RBI — A money-market investment (Incorrect). This is the Treasury bill, which RBI issues for the Central Government for less than one year. It pays no interest (zero coupon). It is sold below its face value and repaid at face value.
Option (3) A certificate of deposit issued by commercial bank — A money-market investment (Incorrect). It is a short-term, unsecured deposit instrument issued by banks.
Option (4) A 15 day Commercial Paper — A money-market investment (Incorrect). It is a short-term unsecured promissory note, and 15 days is well within one year.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.
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. …” |