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?
Explanation
Commercial paper is a commonly used type of unsecured, short-term debt instrument issued
by corporations, typically used for the financing of payroll, accounts payable and inventories,
and meeting other short-term liabilities. Maturities on commercial paper typically last several
days, and rarely range longer than 270 days. So statement 1 is correct.
The Certificate of Deposit (CD) is an agreement between the depositor and the bank where
a predetermined amount of money is fixed for a specific time period. The CD is a promissory note, the interest on which is paid by the bank. CDs are short-term debt instruments issued by Banks. So statement 2 is not correct.
Call Money is short term finance used for inter-bank transactions. It has a maturity period of one
day to fifteen days. So statement 3 is correct.
A zero-coupon bond is a debt security that does not pay interest but instead trades at a
deep discount, rendering a profit at maturity, when the bond is redeemed for its full face
value. So statement 4 is not correct.
Therefore, the correct answer is (c).