CA Foundation · Business Economics · Money Market
Which of the following money market instruments is issued by a scheduled commercial bank to raise funds from depositors and carries a fixed maturity, with the amount payable to the holder on the due date?
The correct answer is Certificate of Deposit. A CD is a negotiable short-term deposit instrument issued by banks for a fixed maturity and repaid on the due date. Shares and debentures are long-term capital market instruments, so they do not fit this money market description.
- ACertificate of DepositCorrect
- BEquity share
- CDebenture
- DPreference share
Explanation
A Certificate of Deposit (CD) is a negotiable, unsecured, usance-based money market instrument issued by banks against funds deposited for a fixed period. Equity shares, debentures and preference shares are capital market instruments with long-term or perpetual horizons, so they are not money market instruments.
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