With reference to the Indian economy, consider the following statements :
- 1.'Commercial Paper' is a short-term unsecured promissory note.
- 2.'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
- 3.'Call Money' is a short-term finance used for interbank transactions.
- 4.'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct ?
Show answer
Answer: C. Statement 1 is correct: commercial paper is a short-term unsecured promissory note issued by companies. Statement 2 is wrong: certificates of deposit are short-term instruments issued by banks, not RBI. Statement 3 is correct: call money is very short-term (overnight) borrowing between banks. Statement 4 is wrong: zero-coupon bonds pay no interest; they are sold at a discount. So 1 and 3.
Watch for: 'Zero-coupon' literally means no interest, but students skip over the word.
Why the other options are wrong
- A. Wrong because certificates of deposit are short-term and issued by banks.
- B. Wrong because zero-coupon bonds bear no interest.
- D. Wrong because statements 2 and 4 are false.
Source to check: RBI Master Directions on Commercial Paper and Certificates of Deposit (rbi.org.in); RBI FAQs on money market instruments
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.