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 ✓ UPSC's answer
- (d) 2, 3 and 4 only
Why the answer is (c)
• Statement 1 is correct: Commercial Paper is an unsecured promissory note issued by highly rated corporates for 7 days to 1 year.
• Statement 3 is correct: call money is overnight (up to 14 days as notice money) borrowing among banks to manage reserves.
• Statement 2 is wrong: Certificates of Deposit are short-term (7 days to 1 year) instruments issued by banks and FIs to investors, not by the RBI.
• Statement 4 is wrong: zero-coupon bonds pay no periodic interest — they are sold at a discount and redeemed at par — and are issued by governments and companies, not specifically by banks to corporations.
• Hence 1 and 3 only, option (c).
Why the other options are wrong
- (a) 1 and 2 only
- Statement 2 is wrong: CDs are issued by banks, not the RBI.
- (b) 4 only
- Statement 4 is wrong: zero-coupon bonds bear no interest.
- (d) 2, 3 and 4 only
- Statements 2 and 4 are wrong.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2020, held on 4 October 2020. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.