Certificates of Deposit were introduced in the Indian money market in which year?

The correct answer is C, I and II. Statement I is right: commercial paper is an unsecured money market instrument issued in the form of a promissory note, so it is backed only by the credit standing of the issuer and not by any security. Statement II is right as well: commercial paper was introduced in the Indian money market in 1990, to let highly rated companies raise working capital directly instead of borrowing from banks. Statement III is wrong, and that is why B and D fail: commercial paper is issued by companies, primary dealers and all-India financial institutions, while the Reserve Bank only lays down the rules for its issue and acts as the regulator. The Reserve Bank issues treasury bills, but it does so on behalf of the Government of India. A is incomplete because it leaves out the correct statement about the year 1990.

The correct answer is C, M1 plus the net time deposits of commercial banks. M3, called broad money or aggregate monetary resources, is the measure the Reserve Bank watches most closely, and it adds the time deposits of the banking system to narrow money. A is wrong because currency with the public plus demand deposits is only a part of M1; M1 is currency with the public plus demand deposits of banks plus other deposits with the RBI, so the expression given is incomplete and in any case describes M1, not M3. B is wrong because M1 plus savings deposits with post office savings banks is the definition of M2. D is wrong because M1 plus total deposits with post office savings organisations is not a recognised aggregate; M4 is M3, not M1, plus total post office deposits other than National Savings Certificates. Remember the order of liquidity: M1 is the most liquid and M4 the least.

The correct answer is C, one year. By definition the money market is the market for short-term funds, and the dividing line drawn in India and everywhere else is a maturity of one year; anything longer belongs to the capital market. A is wrong because three months is only the tenor of the 91-day treasury bill, one instrument among many, and the market also trades 182-day and 364-day bills. B is wrong for the same reason: six months corresponds roughly to the 182-day bill and not to the limit of the market. D is wrong because a three-year instrument is a capital market security; dated government securities, debentures and bonds of such maturity are issued in the capital market and traded under SEBI's regulation. Fixing the one-year line in memory also answers questions on commercial paper and certificates of deposit, whose maximum maturity is one year.

The correct answer is B. A treasury bill is an instrument of the government's short-term borrowing, and the Reserve Bank of India, as banker and debt manager to the government, issues it on the government's behalf through auctions. A is wrong because SEBI regulates the securities market and protects investors in shares and debentures; it issues no government paper. C is wrong because the State Bank of India is only a participant in the auction, like other banks and primary dealers, and buys treasury bills for its own portfolio. D is wrong because the Ministry of Corporate Affairs administers company law and has nothing to do with government borrowing. Note the related fact that treasury bills carry no coupon: they are sold at a discount to face value and redeemed at face value, so the discount is the return.

The correct answer is B, 91, 182 and 364 days. These are the three tenors of treasury bills auctioned by the Reserve Bank, with the 91-day bill auctioned most frequently. A is wrong because the 14-day treasury bill was discontinued and is no longer part of the regular auction calendar; it survives only in old study material. C is wrong because 30, 60 and 90 days are the usual maturities of trade bills and of some certificates of deposit, not of treasury bills. D is wrong because a 730-day instrument runs for two years and is therefore a dated government security of the capital market, outside the one-year limit of the money market. For periods shorter than 91 days the government uses Cash Management Bills, which were introduced in 2010.