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Indian Institute of Technology Kharagpur

Financial Institutions and Markets

Assignment- Week 8
TYPE OF QUESTION: MCQ/MSQ
Number of questions: 20 Total mark: 20 X 1 = 20
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QUESTION 1:
State whether the following statement is true or false:
“Call Money Market in India is seasonal in nature”
a. True
b. False
Correct Answer: a. True
Detailed Solution:
The need for call money borrowings is the highest around March every year which may be
due to withdrawals of deposits in March to meet year-end tax payments and withdrawals
of funds by financial institutions to meet their statutory obligations.

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QUESTION 2:
State whether the following statement is true or false:
“The loans made in the Call Money Market are of a short-term nature, their maturity varying
between one day to a month”
a. True
b. False

Correct Answer: b. False

Detailed Solution:
The loans made in the Call Money Market are of a short-term nature, their maturity varying
between one day to a fortnight

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QUESTION 3:
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Short-term loans by banks to security brokers and dealers for the purpose of financing their
customers' purchases of common stock in the US is called:
a. Federal Funds Market
b. Call Money Market Proper
c. Inter Bank Call Market
d. None of the above

Correct Answer: b. Call Money Market Proper

Detailed Solution:

The call loan market in the US performs a different and specific function. The call loans "represent
short-term loans by banks to security brokers and dealers for the purpose of financing their
customers' purchases of common stock
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QUESTION 4:
The LIBOR is fixed on a daily basis by the _________________
a. RBI
b. SEBI
c. Market Forces
d. British Bankers’ Association (BBA)

Correct Answer: d. British Bankers’ Association (BBA)

Detailed Solution:
The LIBOR is fixed on a daily basis by the British Bankers’ Association (BBA).
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QUESTION 5:
In term money market, the tenor of the transactions is from ___________ to _________.

a. Only day, 15 days

b. Only day, One month
c. 15 days to 90 days
d. 15 days to one year

Correct Answer: d. 15 days to one year

Detailed Solution:
In term money market where the tenor of the transactions is from 15 days to one year.
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QUESTION 6:
The RBI issues two types of short-term securities to finance the short-term liquidity requirements.
Under Section 17(5) of RBI, 1934, the RBI provides XXX to the states to help them tide over
temporary mismatches in the cash flow of their receipts and payments. Such advances, under the
Act are repayable in each case not later than 3 months from the date of making the advance. There
are two types of XXX, normal and special. Normal XXX are clean advances, special XXX are
secured advances provided against the pledge of Government of India dated securities. Identify
XXX

a. Repurchase Agreement (REPO)

b. Collateralised Borrowing and Lending Obligation (CBLO)
c. Cash Management Bills (CMBs)
d. Ways and Means Advances (WMA)

Correct Answer: d. Ways and Means Advances (WMA)

Detailed Solution:
The RBI issues two types of short-term securities to finance the short-term liquidity requirements.
Under Section 17(5) of RBI, 1934, the RBI provides Ways and Means Advances (WMA) to the
states banking with it to help them tide over temporary mismatches in the cash flow of their receipts
and payments. Such advances, under the Act are repayable in each case not later than 3 months
from the date of making the advance. There are two types of WMA, normal and special. Normal
WMA are clean advances, special WMA are secured advances provided against the pledge of
Government of India dated securities
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QUESTION 7:
Statement I: Call money markets are a part of the national money market where the day-to-day
surplus funds, mostly of banks, are traded in.
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Statement II: Call loans in India are unsecured

a. Only I
b. Only II
c. Both I and II
d. Neither I nor II
Correct answer: c. Both I and II
Detailed solution:
Call money market is that part of the national money market where the day-to-day surplus funds,
mostly of banks, are traded in. Mostly the call money market helps the banks to borrow the money
without collateral from other banks to maintain the cash reserve ratio (CRR) with RBI. The loans
made in this market are of a short-term nature, their maturity varying between one day to a fortnight
Unlike other countries, call loan in India are unsecured

QUESTION 8:
Mandatory credit rating is needed for the issuance of _________.
a. Commercial Bills
b. Certificate of Deposit
c. Treasury Bills
d. Commercial Paper
Correct Answer: d. Commercial Paper
Detailed Solution:
Mandatory credit rating for issuance of Commercial Paper. The minimum credit rating shall be P-
2 of CRISIL and A2 for ICRA
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QUESTION 9:
_____________ are a particular type of Finance Bill or Promissory note put out by the Govt. of
the country to meet the needs of supplementary short-term finance. They are zero coupon securities
and pay no interest, issued at discount and redeemed at par.
a. Commercial Bills
b. Certificate of Deposit
c. Treasury Bills
d. Commercial Paper

Correct Answer: c. Treasury Bills

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Detailed Solution:
Treasury Bills are a particular type of Finance Bill or Promissory note put out by the Govt. of the
country to meet the needs of supplementary short-term finance. They are zero coupon securities
and pay no interest, issued at discount and redeemed at par
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QUESTION 10:
Ad-hoc Treasury Bills are ______________
a. Issued in favour of RBI only
b. Not sold through tender or auction
c. Not marketable in India
d. All of the above

Correct Answer: d. All of the above

Detailed Solution:
Ad-hoc TBs: Issued in favour of the RBI only. They are not sold through tender or auction. They are
purchased by the RBI and the RBI is authorised to issue currency notes against them. They aren't
marketable in India.

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QUESTION 11:

Which of the following statement(s) is/are true about Call Money Market in India?

I That part of national capital market where the day-to-day surplus funds, mostly of
banks are traded in
II Banks borrow from other banks in order to meet a sudden demand for funds, large
payments, large remittances, and to maintain cash or liquidity with the RBI.
III Non-bank institutions (other than PDs) are not permitted in the call/notice money
market.

a. Only I and II
b. Only I and III
c. Only II and III
d. I, II and III

Correct Answer: c. Only II and III

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Detailed Solution:

That part of national money market where the day-to-day surplus funds, mostly of banks are traded
in. Banks borrow from other banks in order to meet a sudden demand for funds, large payments,
large remittances, and to maintain cash or liquidity with the RBI. Non-bank institutions (other than
PDs) are not permitted in the call/notice money market.

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QUESTION 12:

Which of the following statement(s) is/are true about Collateralised Borrowing and
Lending Obligation (CBLO)?

I It was operationalised with effect from January 20, 2003

II It is underlying charge on securities held in custody (with CCIL) for the amount
borrowed/lent.
III It is an obligation by the borrower to return the money borrowed, at a specified future
date

a. Only I and II
b. Only I and III
c. Only II and III
d. I, II and III

Correct Answer: d. I, II and III

Detailed Solution:
CBLO is another money market instrument operated by the Clearing Corporation of India Ltd.
(CCIL), for the benefit of the entities who have either no access to the interbank call money market
or have restricted access in terms of ceiling on call borrowing and lending transactions.
It was operationalised with effect from January 20, 2003
It is an obligation by the borrower to return the money borrowed, at a specified future date
Provides authority to the lender to receive money lent, at a specified future date with an
option/privilege to transfer the authority to another person for value received
It is underlying charge on securities held in custody (with CCIL) for the amount borrowed/lent.

______________________________________________________________________________
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QUESTION 13:

Which of the following are characteristics of a Treasury-Bill?

I High Liquidity Money Market Instrument

II Eligibility for Inclusion in SLR
III Variable Yield

a. Only I and II
b. Only I and III
c. Only II and III
d. I, II and III

Correct Answer: a. Only I and II

Detailed Solution:
Characteristics of a T-Bill
▪ High Liquidity Money Market Instrument

▪ Absence of Risk of Default

▪ Ready availability on Tap

▪ Assured Yield

▪ Low transaction Cost

▪ Eligibility for Inclusion in SLR

▪ Negligible Capital Depreciation

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QUESTION 14:
State whether the following statement is true or false:
“T- bills are sold through auction”
a. True
b. False
Correct Answer: a. True
Detailed Solution:
T- bills are sold through auction
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QUESTION 15:
Treasury bills are available for a minimum amount of Rs._____ and in multiples of Rs.
__________

a. 10,000, 5,000
b. 10,000, 10,000
c. 25,000, 5,000
d. 25,000 25,000

Correct Answer: d. 25,000 25,000

Detailed Solution:
Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000
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QUESTION 16:
The ______ day T-bills are auctioned on every Wednesday.
a. 14
b. 91
c. 182
d. 365
Correct Answer: b. 91
Detailed Solution:
The 91 day T-bills are auctioned on every Wednesday.

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QUESTION 17:
The Treasury bills of ______ days and _____ days tenure are auctioned on alternate Wednesdays.
a. 14, 90
b. 14, 182
c. 90,182
d. 182, 364

Correct Answer: d. 182, 364

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Detailed Solution:
The Treasury bills of 182 days and 364 days tenure are auctioned on alternate Wednesdays.

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QUESTION 18:
__________ represent bank deposit accounts which are transferable from one party to another.
Liquidity and marketability are its hallmark. They are issued by banks for attracting large corporate
deposits rather mobilising individual savings

a. Commercial Bills
b. Certificate of Deposit
c. Treasury Bills
d. Commercial Paper

Correct Answer: b. Certificate of Deposit

Detailed Solution:
CDs represent bank deposit accounts which are transferable from one party to another. Liquidity
and marketability are its hallmark. They are issued by banks for attracting large corporate deposits
rather mobilising individual savings

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QUESTION 19:
With reference to Commercial Bills, which of the following is payable at a specified later date

a. Usance
b. Demand bill
c. Both Usance and Demand Bill
d. None of the above

Correct answer: a. Usance

Detailed solution:

Demand bill: A bill in which no time for payment is specified

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Usance or time bill: It is payable at a specified later date

QUESTION 20:
Mumbai inter-bank bid and offer rate is calculated daily by __________
a. National Stock Exchange
b. Bombay Stock Exchange
c. Reserve Bank of India
d. State Bank of India

Correct Answer: a

Detailed Solution:

Mumbai inter-bank bid and offer rate is calculated daily by the National Stock Exchange of India
(NSE). It is calculated on the basis of data collected from the panel of 30 banks and primary
dealers. The panel has a mix of public sector banks including SBI, CBI; private sector banks
including Axis Bank Ltd, HDFC Bank Ltd; foreign banks including Citibank NA and Deutsche
Bank; and primary dealers including ICICI Securities Ltd and PNB Gilts Ltd

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