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?
- A.1 and 2 only
- B.4 only
- C.1 and 3 only
- D.2, 3 and 4 only
Correct answer
Explanation
The correct answer is C, 1 and 3 only. Commercial paper and call money are correctly described; the statements on certificates of deposit and zero-coupon bonds are wrong.
Commercial paper is an unsecured promissory note issued by companies to raise short-term funds, usually for 7 days to one year. Call money is money lent between banks for a single day, and notice money for 2 to 14 days. A certificate of deposit is a short-term deposit instrument issued by banks and financial institutions, not by the RBI. A zero-coupon bond pays no periodic interest; it is sold at a discount and redeemed at face value.
A is wrong because statement 2 is false. B is wrong because a zero-coupon bond carries no interest, so statement 4 is false. D is wrong because statements 2 and 4 are false.
Exam tip: CP = companies, CD = banks, call money = one day; zero-coupon = discount, no interest.
Practice Questions
View allWhat were the main reforms undertaken under the New Economic Policy of the early 1990s ? 1. Trade liberalization 2. Public Sector Disinvestment 3. Poverty Alleviation 4. Rapid industrialization Select the answer using the code given below :
- A.1 only
- B.3 and 4
- C.1 and 2
- D.2 and 4
Show answer
The New Economic Policy of 1991 rested on liberalisation, privatisation and globalisation, and trade liberalisation and public sector disinvestment were among its main measures.
Read the full explanation →Population of the year 2011 was first introduced in the tax devolution formula for sharing Union tax revenue with the States by
- A.Thirteenth Finance Commission
- B.Fifteenth Finance Commission
- C.Fourteenth Finance Commission
- D.Twelfth Finance Commission
Show answer
Chaired by Y. V. Reddy, it brought the 2011 Census into the devolution formula for the first time, through a criterion called demographic change.
Read the full explanation →Consider the following statements regarding Public Goods and Externalities : 1. Non-rivalry and non-excludability are two characteristics of Public Goods 2. Market can provide the optimal amount of a good in the presence of externalities Which of the statements given above is/are correct ?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
Show answer
Public goods are non-rival and non-excludable, but externalities cause market failure, so the market does not supply the optimal amount.
Read the full explanation →With which of the following was the Bretton Woods System NOT associated?
- A.International Monetary Fund
- B.Economic recovery after the Second World War
- C.International Bank for Reconstruction and Development
- D.Establishment of a monetary system based on floating exchange rate
Show answer
Bretton Woods set up fixed, not floating, exchange rates. At the Bretton Woods Conference in New Hampshire, USA, in July 1944, 44 Allied nations agreed on a new post-war money order.
Read the full explanation →Which one of the following statements with regard to the National Rural Employment Guarantee Act, 2005 is correct ?
- A.It ensures 175 days of employment to needy persons in rural areas.
- B.It gives higher wages to women workers.
- C.People are generally given both skilled and unskilled jobs.
- D.This is implemented only in rural areas of India.
Show answer
As its name says, the Act guarantees work to households in rural areas; towns and cities are outside its scope.
Read the full explanation →