With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of :
- (a) Bond market
- (b) Forex market
- (c) Money market ✓ UPSC's answer
- (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.