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Question
______ refers to a promissory note used for short term borrowing by the government. They are the most commonly used money market instrument
Options
Call Money
Treasury Bills
Commercial Paper
Certificate of Deposit
Solution
Call Money
Explanation -
Call Money: A call money transaction is a type of interbank transaction. Call money allows banks to borrow from one another to cover any shortfalls in funds needed to sustain CRR. That is, any bank in need of funds borrows from a bank with excess funds. The maturity time of call money is quite short, ranging from one to fifteen days. The call rate is the interest paid on such loans. The call rate fluctuates greatly from day to day. The call rate and other money market products like Commercial Papers and Certificates of Deposits have a negative relationship. As the call rate rises, other money market instruments become less expensive, and their demand rises.
