Q. Which of the following characteristic feature of different money market instruments is/are not correctly matched?
1. T-Bills: The Treasury Bills are marketable, affordable and risk free.
2. Banker’s Acceptance: Companies use these negotiable time drafts to finance imports, exports and other trade.
3. Commercial papers: These are time deposits that are issued by the commercial banks.
Select the correct answer using the codes given below:

[A] One Pair only

[B] Two Pair only

[C] All Three Pairs

[D] None

Answer: A

Explanation: The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities. There is no physical “money market”, instead it is an informal network of banks and traders linked by telephones, fax machines, and computers.

Types of Money Market Instruments

  • The Treasury bills are short-term money market instrument that mature in a year or less than that. The purchase price is less than the face value. At maturity the government pays the Treasury bill holder the full face value. The Treasury Bills are marketable, affordable and risk free. The security attached to the treasury bills comes at the cost of very low returns.
  • Bankers Acceptance: It is a short-term credit investment. It is guaranteed by a bank to make payments. The Banker’s Acceptance is traded in the Secondary market. The banker’s acceptance is mostly used to finance exports, imports and other transactions in goods.
  • Certificates of Deposits – The certificates of deposit are basically time deposits that are issued by the commercial banks with maturity periods ranging from 3 months to five years.
  • Commercial Paper – Commercial paper refers to unsecured short-term promissory notes issued by financial and nonfinancial corporations.

Source: Indian Economy by Sankarganesh Karuppiah