UPSC Prelims 2024 GS Paper I · Q20 of 96 Economy medium

With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of :

  1. (a) Bond market
  2. (b) Forex market
  3. (c) Money market ✓ UPSC's answer
  4. (d) Stock market

Why the answer is (c)

• Collateralised Borrowing and Lending Obligation (CBLO) was a money-market instrument operated by the Clearing Corporation of India for borrowing and lending funds for one day to one year against government securities held as collateral.

• Because it deals in short-term funds — like call money, treasury bills, commercial paper and certificates of deposit — it belongs to the money market, option (c).

• It was replaced in 2018 by the tri-party repo (TREPS), which serves the same function.

• Bond and stock markets deal in long-term capital, and the forex market in currencies, so options (a), (b) and (d) are wrong.

• Mutual funds and insurers were major lenders in this segment.

Why the other options are wrong

(a) Bond market
The bond market deals in long-term debt, not overnight funds.
(b) Forex market
The forex market deals in currency exchange, not collateralised lending.
(d) Stock market
The stock market deals in equity, not short-term funds.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2024, held on 16 June 2024. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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