UPSC Prelims 2020 – Question 70

Here is Question No. 70 a part of our series on UPSC Prelims 2020

Q70. 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 interest-bearing short-term bonds issued by 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

Answer: C

• Statement 1 is correct: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note and held in a materialized form through any of the depositories approved by and registered with SEBI.
• Statement 2 is not correct: Certificates of Deposits are fixed-income financial instruments generally issued by commercial banks to individuals/ other lenders.
• Statement 3 is correct: Call money is a short-term, interest-paying loan from 1 to 14 days made by a financial institution to another financial institution.
• Statement 4 is not correct: Zero-coupon bond (Also known as Pure Discount Bond or Accrual Bond) refers to those bonds that are issued at a discount to its par value and make no periodic interest payment (noninterest-bearing), unlike a normal coupon-bearing bond. Zero Coupon Bonds are not interest-bearing instead they are issued at deep discounts and redeemable at par on a future date.

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