UPSC CSE Prelims
Question 17
With reference to the Indian economy, consider the following statements:
- 'Commercial Paper' is a short-term unsecured promissory note.
- 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
- 'Call Money' is a short-term finance used for interbank transactions.
- '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?
View correct answer and explanation
Correct answer: C
Correct Option: C (1 & 3 only)
Explanation: Commercial paper and call money are short-term money-market instruments; the descriptions of certificates of deposit and zero-coupon bonds here are incorrect.
Statement / Pair / Item-wise Analysis:
1. Correct - Commercial paper is a short-term unsecured promissory note issued by eligible entities.
2. Incorrect - Certificates of deposit are negotiable short-term instruments issued by banks or qualifying financial institutions, not long-term RBI corporate instruments.
3. Correct - Call money refers to unsecured interbank borrowing, generally overnight.
4. Incorrect - Zero-coupon bonds do not pay periodic interest; returns arise mainly from issue discount.
Option-wise Analysis:
A. Incorrect-includes incorrect item 2 (Certificates of deposit are negotiable short-term instruments issued by banks or qualifying financial institutions, not long-term RBI corporate instruments); omits correct item 3 (Call money refers to unsecured interbank borrowing, generally overnight).
B. Incorrect-includes incorrect item 4 (Zero-coupon bonds do not pay periodic interest; returns arise mainly from issue discount); omits correct item 1 (Commercial paper is a short-term unsecured promissory note issued by eligible entities); omits correct item 3 (Call money refers to unsecured interbank borrowing, generally overnight).
C. Correct-includes all and only valid statements/items 1, 3.
D. Incorrect-includes incorrect item 2 (Certificates of deposit are negotiable short-term instruments issued by banks or qualifying financial institutions, not long-term RBI corporate instruments); includes incorrect item 4 (Zero-coupon bonds do not pay periodic interest; returns arise mainly from issue discount); omits correct item 1 (Commercial paper is a short-term unsecured promissory note issued by eligible entities).