1. Which of the following money market instruments is issued at a discount to face value and redeemed at par? I. Treasury Bills. II. Commercial Papers. III. Certificate of Deposits.
Only I and II
Only II and III
All I, II, and III
Only I
Explanation:
Treasury Bills (T-Bills), Commercial Papers (CP), and Certificates of Deposit (CD) are all "Zero Coupon" instruments. They do not pay periodic interest; instead, they are issued at a discount to their face value, and the profit is the difference between the redemption value and the issue price.
2. In the Call/Notice Money Market, funds are borrowed for a period of:
Up to 1 year.
More than 1 year.
1 day (Overnight) and 2-14 days respectively.
Only 14 days.
Explanation:
"Call Money" refers to lending/borrowing for 1 day (overnight). "Notice Money" refers to lending/borrowing for a period of 2 to 14 days. "Term Money" is for 15 days to 1 year.
3. Commercial Paper (CP) is an unsecured money market instrument issued in the form of:
Promissory Note
Equity Share
Demand Draft
Debenture
Explanation:
CP is an unsecured Promissory Note issued by corporates, primary dealers, and FIs to raise short-term funds.
4. What does "TREPS" stand for in the money market context?
Total Return Exchange Processing System
Trade Reporting and Electronic Payment System
Treasury Repurchase Electronic Payment System
Tri-party Repo Dealing System
Explanation:
TREPS enables tri-party repo borrowing and lending, facilitated by a central counterparty (CCIL). It allows participants to borrow against government securities collateral with a third party mediating the transaction.
5. Which of the following tenors is NOT a standard maturity period for Treasury Bills (T-Bills) issued by the Government of India?
91 Days
270 Days
182 Days
364 Days
Explanation:
Currently, the Government of India issues Treasury Bills in three standard maturities: 91-day, 182-day, and 364-day. There is no standard 270-day T-Bill.
6. Which of the following statements is true about "Certificate of Deposit" (CD)?
It can be issued by corporates.
It has a minimum maturity of 1 day.
It is a secured negotiable money market instrument.
It is issued by banks against funds deposited for a specified time period.
Explanation:
CD is a negotiable money market instrument issued by Scheduled Commercial Banks and select FIs. The minimum maturity for a CD issued by banks is 7 days, not 1 day. It is unsecured.
7. Who among the following can operate as both lenders and borrowers in the Call Money Market?
Both A and B
Primary Dealers (PDs)
Corporates
Scheduled Commercial Banks (excluding RRBs)
Explanation:
Banks and Primary Dealers act as both borrowers and lenders in the Call/Notice money market. Co-operative banks are also permitted. Corporates are not permitted.
8. "Masala Bonds" are defined as:
Bonds issued by spice companies.
Dollar-denominated bonds issued in India.
Euro-denominated bonds issued in India.
Rupee-denominated bonds issued in overseas markets.
Explanation:
Masala Bonds are debt instruments issued outside India but denominated in Indian Rupees rather than foreign currency. This shifts the currency risk from the issuer to the investor.
9. In a "Corporate Bond Repo" transaction, the collateral used is:
Government Securities.
Corporate Bonds.
Gold.
Equity Shares.
Explanation:
Unlike standard Repo where G-Secs are used, Corporate Bond Repo allows borrowing funds by pledging Corporate Bonds. This aims to deepen the corporate bond market.
10. A "Commercial Bill" becomes a negotiable money market instrument only when it is:
Endorsed by the RBI.
Accepted by the buyer.
Drawn by a seller on a buyer.
Accepted by a commercial bank.
Explanation:
While a trade bill acts as evidence of debt, it becomes a liquid money market instrument only when a commercial bank "Accepts" it, guaranteeing payment. It can then be discounted.
11. The interest rate in the Call Money Market is determined by:
Ministry of Finance
Indian Banks' Association
Market forces of Demand and Supply
Reserve Bank of India
Explanation:
While RBI sets policy rates (Repo), the Call Money Rate is a market-determined rate based on the demand for and supply of overnight funds among banks.
12. Borrowing under the "Notice Money Market" refers to funds borrowed for a period of:
More than 1 year
15 days to 1 year
1 day (Overnight)
2 to 14 days
Explanation:
The Call/Notice/Term Money market is classified by tenor: "Call Money" is for 1 day, "Notice Money" is for 2-14 days, and "Term Money" is for 15 days up to 1 year.
13. What is the maturity range for Commercial Papers (CPs) in India?
Minimum 30 days and maximum 5 years.
Minimum 1 day and maximum 90 days.
Minimum 7 days and maximum 1 year.
Minimum 15 days and maximum 1 year.
Explanation:
Commercial Papers can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue.
14. A "Repo" (Repurchase Agreement) is essentially a:
Collateralized short-term borrowing.
Grant from the government.
Sale of securities without any promise to buy back.
Long-term loan without collateral.
Explanation:
In a Repo, the borrower sells securities to the lender with an agreement to repurchase them at a future date at a predetermined price. The securities act as collateral for the short-term loan.
15. What is the minimum denomination for issuing a Certificate of Deposit (CD)?
?5 Lakh
?1 Lakh
?1 Crore
?25 Lakh
Explanation:
Certificates of Deposit (CDs) can be issued in multiples of ?1 Lakh, subject to a minimum size of ?1 Lakh.
16. In the Indian Money Market, the standard day count convention used for calculating interest on Treasury Bills is:
30/365
Actual/360
30/360
Actual/365
Explanation:
For T-Bills and G-Secs in India, the convention is Actual/365. This means interest/discount is calculated based on the actual number of days elapsed divided by a 365-day year.
17. TREPS (Tri-party Repo) replaced which earlier money market instrument?
Commercial Paper
Certificate of Deposit
Call Money
CBLO (Collateralized Borrowing and Lending Obligation)
Explanation:
TREPS replaced CBLO in 2018 to provide a more robust tri-party repo platform managed by CCIL.
18. In a Repo transaction, the securities sold by the borrower are:
Removed from the borrower's Balance Sheet.
Transferred permanently to RBI.
Retained in the borrower's Balance Sheet (as per Accounting guidelines).
Converted into equity.
Explanation:
Although legal title passes, the economic substance is a collateralized loan. Thus, the borrower continues to recognize the securities in their Balance Sheet and recognizes a liability for the repurchase price.
19. The "Bank Rate" is currently aligned with which other policy rate?
Marginal Standing Facility (MSF) Rate
Repo Rate
Call Money Rate
Reverse Repo Rate
Explanation:
Under the revised monetary policy framework, the Bank Rate is aligned with the MSF Rate (usually 25 bps above the Repo Rate). They move in tandem.
20. Treasury Bills are auctioned by RBI on behalf of the Government of India using which platform?
Explanation:
E-Kuber is the Core Banking Solution (CBS) of the RBI. The auction of Government Securities and T-Bills is conducted on the E-Kuber platform.