Chapter 30: Money Markets and Capital Markets (JAIIB - MODULE D)
1. Call money market deals with borrowing and lending of funds for a period of:
A. 2 to 7 days
B. 15 to 30 days
C. 1 day (overnight)
D. More than 90 days
Call money market is the market for overnight funds (1 day). It is mainly used by banks to manage short-term liquidity mismatches.
2. Notice money refers to funds borrowed or lent for a period of:
A. 2 to 14 days
B. 1 day only
C. 15 to 90 days
D. More than 1 year
Notice money market deals with short-term funds for 2 to 14 days. It is distinct from call money (1 day) and term money (15+ days).
3. Term money market transactions are defined as those with a maturity period of:
A. 1 day
B. 2 to 14 days
C. 7 to 14 days
D. 15 days to 1 year
Term money refers to interbank lending/borrowing for 15 days to 1 year. These are not covered under call or notice money.
4. A bank faces a temporary liquidity shortage for one day. Which market will it most likely approach?
A. Term money market
B. Call money market
C. Notice money market
D. Treasury bill market
For one-day liquidity adjustment, banks use the call money market. Notice and term money are for longer durations.
5. Which of the following is NOT a feature of the call/notice money market?
A. Unsecured borrowing and lending
B. Primarily between banks and financial institutions
C. Maturity period more than 1 year
D. Used for short-term liquidity management
Call and notice money are very short-term instruments, with maturities from 1 day to 14 days. Anything beyond 1 year falls under capital markets, not money markets.
6. Treasury Bills in India are issued by:
A. Government of India
B. Reserve Bank of India on its own behalf
C. Commercial banks
D. SEBI
Treasury Bills (T-Bills) are short-term debt instruments issued by the Government of India, managed through the RBI.
7. Treasury Bills are issued at:
A. Face value with coupon interest
B. Premium to face value
C. Same as market price
D. Discount to face value
T-Bills are zero-coupon instruments issued at a discount to face value. On maturity, the investor receives the full face value, and the difference is the return.
8. Which of the following maturity periods are available for T-Bills in India?
A. 7 days, 14 days, and 28 days
B. 91 days, 182 days, and 364 days
C. 1 year, 2 year, and 3 year
D. 30 days, 60 days, and 120 days
In India, T-Bills are issued for 91, 182, and 364 days. They are purely short-term instruments.
9. An investor buys a 91-day T-Bill of ₹100 face value at ₹97. What is the annualized yield?
15. Which of the following is NOT true about Certificates of Deposit?
A. They are transferable in the secondary market
B. They can be issued by NBFCs
C. They are negotiable money market instruments
D. They help banks manage short-term liquidity
NBFCs are not permitted to issue CDs. Only scheduled commercial banks and certain financial institutions can issue them.
16. Commercial Paper (CP) is a short-term unsecured money market instrument issued by:
A. Scheduled commercial banks only
B. Government of India
C. Corporates, Primary Dealers, and All-India Financial Institutions
D. Insurance companies
Commercial Paper is an unsecured, short-term debt instrument issued by corporates, primary dealers, and financial institutions to meet working capital needs.
17. What is the minimum maturity period of Commercial Paper (CP) in India?
A. 7 days
B. 14 days
C. 30 days
D. 91 days
As per RBI guidelines, the minimum maturity of CP in India is 7 days and the maximum is up to 1 year.
18. Which of the following entities are eligible investors in Commercial Paper?
A. Individuals
B. Banks
C. Mutual Funds
D. All of the above
CPs can be purchased by individuals, banks, corporates, mutual funds, and other eligible investors. They are widely used in money markets.
19. A company issues a 180-day CP of ₹10 crore at a discount. The face value is ₹10 crore, and issue price is ₹9.6 crore. What is the approximate annualized yield?
20. Which of the following is NOT a feature of Commercial Papers?
A. Unsecured instrument
B. Short-term maturity
C. Issued by RBI for deficit financing
D. Can be issued in dematerialized form
CPs are issued by corporates and financial institutions, not by RBI. RBI only regulates the CP market.
21. In a Repo transaction, the borrower sells securities with an agreement to:
A. Repurchase them at a future date
B. Cancel them permanently
C. Convert them into equity
D. Pledge them without return
A Repo (Repurchase Agreement) is a short-term borrowing where securities are sold with an agreement to repurchase at a future date and price.
22. The minimum maturity period of a Repo in India is:
A. Overnight only
B. 3 days
C. 1 day
D. 7 days
In India, the minimum maturity of a repo is 1 day (overnight). The maximum maturity is usually up to 1 year.
23. Which of the following is the key difference between Repo and Reverse Repo?
A. Repo is borrowing, Reverse Repo is also borrowing
B. Repo is borrowing by selling securities, Reverse Repo is lending by buying securities
C. Repo always has higher rate than Reverse Repo by law
D. Repo is for long term, Reverse Repo is for short term
In a Repo, banks borrow money by selling securities with an agreement to repurchase them. In a Reverse Repo, banks lend money by buying securities with an agreement to resell.
24. Which entity introduced Tri-Party Repo in India to improve settlement and reduce counterparty risk?
A. SEBI
B. Ministry of Finance
C. NABARD
D. RBI
RBI introduced Tri-Party Repo (2017) to reduce settlement and counterparty risks by involving a third-party agent for collateral management.
25. Who acts as the Tri-Party Repo agent in India?
A. SEBI
B. RBI directly
C. Clearing Corporation of India Ltd. (CCIL)
D. Ministry of Finance
CCIL acts as the Tri-Party Repo agent in India. It manages collateral, settlement, and ensures smooth functioning of the market.
26. The Bill Rediscounting Scheme (BRDS) was introduced by RBI in collaboration with which institution?
A. SEBI
B. IDBI (Industrial Development Bank of India)
C. NABARD
D. EXIM Bank
BRDS was introduced by RBI along with IDBI in 1960s to provide liquidity by rediscounting genuine trade bills.
27. The main purpose of the Bill Rediscounting Scheme (BRDS) is to:
A. Finance long-term infrastructure projects
B. Encourage foreign currency inflows
C. Provide liquidity to banks by rediscounting trade bills
D. Promote agricultural lending
The BRDS was meant to revive the use of genuine commercial bills and provide liquidity to banks through rediscounting.
28. Under BRDS, the bills eligible for rediscounting must be:
A. Accommodation bills
B. Only usance bills with over 180 days maturity
C. Bills without genuine trade transaction
D. Genuine trade bills arising out of sale of goods
Only genuine trade bills arising out of sale of goods were eligible. Accommodation bills and purely financial bills were excluded.
29. The maturity period of bills under the Bill Rediscounting Scheme (BRDS) was generally:
A. Up to 90 days
B. 6 months to 1 year
C. 1 to 3 years
D. Only overnight
Bills under BRDS typically had a maturity of up to 90 days, in line with trade credit requirements.
30. Which of the following was a major reason for limited success of BRDS in India?
A. High RBI interest rates
B. Lack of government support
C. Preference of banks for cash credit system over bill finance
D. Excessive regulation by SEBI
BRDS was not very successful because Indian banks and borrowers preferred the flexible cash credit system instead of bill financing.
31. Long-Term Repo Operations (LTRO) were introduced by RBI in which year?
A. 2016
B. 2018
C. 2020
D. 2022
LTRO was introduced by RBI in February 2020 to provide durable liquidity at lower interest rates to banks.
32. LTRO is mainly used to:
A. Provide overnight liquidity to banks
B. Provide long-term liquidity at repo rate
C. Control inflation directly
D. Finance government fiscal deficit
LTRO allows banks to borrow funds for longer tenure (1–3 years) at the prevailing repo rate, providing cheaper liquidity compared to market borrowing.
33. Under LTRO, the funds are provided for a tenure of:
A. 1 year and 3 years
B. 6 months and 9 months
C. Only overnight
D. 5 years and 10 years
RBI provided LTRO funds with maturity of 1 year and 3 years, unlike normal repo which is overnight.
34. The key difference between Repo and LTRO is that:
A. Repo is collateral-free, LTRO is secured
B. Repo funds are available for 6 months, LTRO for 1 month
C. Repo is used by corporates, LTRO by banks
D. Repo is short-term (overnight), LTRO provides longer-term liquidity (1–3 years)
Normal Repo is an overnight borrowing tool, while LTRO extends the same facility for longer terms (1–3 years).
35. Which of the following was an intended benefit of LTRO?
A. Reduce government fiscal deficit
B. Ensure cheaper loans and better transmission of repo rate cuts
C. Increase import of foreign currency
D. Support only agriculture credit
LTRO ensured banks had access to cheaper long-term funds, thereby improving transmission of lower repo rates into lending rates for borrowers.
