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___________ is a money market instrument with a fixed maturity, typically ranging from 7 days to 1 year, issued by banks and financial institutions.
  • a)
    Commercial Paper
  • b)
    Certificates of Deposit
  • c)
    Repo
  • d)
    Bill Rediscounting Scheme
Correct answer is option 'B'. Can you explain this answer?
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___________ is a money market instrument with a fixed maturity, typica...
Certificates of Deposit (CDs) emerge as a prominent money market instrument characterized by its fixed maturity period, usually spanning from 7 days to 1 year. These financial instruments are issued by banks and financial institutions as a means to raise short-term funds from the market. The allure of CDs lies in their flexibility and security, attracting both institutional and individual investors seeking relatively low-risk investment options. By purchasing CDs, investors effectively lend funds to the issuing bank or financial entity in exchange for a predetermined interest rate and the return of the principal amount upon maturity. This arrangement benefits both parties, as banks gain access to short-term funding to support their operational activities while investors earn returns that are often higher than traditional savings accounts. In essence, Certificates of Deposit play a pivotal role in the money market ecosystem by providing a vehicle for institutions to secure short-term funds and offering investors a secure and relatively liquid investment avenue with well-defined maturity terms.
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___________ is a money market instrument with a fixed maturity, typica...
Understanding Certificates of Deposit
Certificates of Deposit (CDs) are essential money market instruments that play a vital role in the financial system. Here’s a detailed explanation:
Definition and Characteristics
- Fixed Maturity: CDs have a defined maturity period, typically ranging from 7 days to 1 year.
- Issued by Banks: They are issued by commercial banks and financial institutions as a means to raise short-term funds.
How Certificates of Deposit Work
- Investment: When an investor purchases a CD, they are essentially lending money to the issuing bank for the duration of the term.
- Interest Rates: In return, the bank pays a fixed interest rate, which is often higher than traditional savings accounts to attract investors.
- Safety: CDs are generally considered low-risk investments, often insured by the government up to certain limits.
Comparison with Other Instruments
- Commercial Paper: Unlike CDs, commercial paper is an unsecured, short-term debt instrument issued by corporations.
- Repo Agreements: Repos are agreements to sell and repurchase securities, not a direct borrowing method like CDs.
- Bill Rediscounting Scheme: This involves banks rediscounting bills of exchange and is not a fixed-term instrument like CDs.
Conclusion
Certificates of Deposit are a reliable choice for investors seeking fixed returns over a short period, making them a staple in the money market. They provide safety and predictable income, distinguishing them from other financial instruments.
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Read the following passage carefully and answer the questions given below it. Certain words/phrases have been underlineto help you locate them while answering some of the questions.The modern world requires us to repose trust in many anonymous institutions. We strap ourselves in a flying tin can with two hundred other people not because we know the pilot but because we believe that airline travel is safe. Our trust in these institutions depends on two factors : skills and ethics. We expect that the people who run these institutions know what they are doing, that they build and operate machines that work as they are supposed to and that they are looking out for our welfare even though we are strangers.When one of these factors is weak or absent, trust breaks down and we either pay a high price in safety- as in the Bhopal tragedy -or a large ‘welfare premium’ such as the elaborate security measures at airports. 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Consequently, we cannot trust our schools to turn out good graduates, we cannot ensure that our colleges turn out well trained engineers and we cannot guarantee that our engineers will turn out to be good products.Last year, I was invited to speak at an undergraduate research conference. Most of the participants in this conference were students at the best engineering colleges in the State. One student who was driving me back and forthrecounteda story about the previous year’s final exam. One of his papers had a question from a leading textbook to which the textbook’s answer was wrong. The student was in a dilemma : should he write the (wrong) answer as given in the textbook or should he write the right answer using his own analytical skills. He decided to do the latter and received a zero on that question. Clearly, as the student had suspected, the examiners were looking at the textbook answer while correcting the examination papers instead of verifying its correctness.The behaviour of these examiners is a breakdown of institutional morals, with consequences for the skills acquired by students. I say institutional morals, for the failure of these examiners is not a personal failure. At the same conference I met a whole range of college teachers, all of whom were drafted as examiners at some time or the other. Without exception, they were dedicated individuals who cared about the education and welfare of their students. However, when put in the institutional role of evaluating an anonymous individual, they fail in fulfilling their responsibilities. When some of our best colleges are run in this fashion, is it any wonder that we turn outunskilledengineers and scientists ? If, as we are led to expect, there is a vast increase in education at all levels and the regulatory regime is as weak as it is currently, isn’t it likely that the trust deficit is only going to increase ?We are all aware of the consequences of ignoring corruption at all levels of society. While institutional failures in governance are obvious, I think the real problem lies deeper, in the failure of every day institutions that are quite apart from institutions that impinge on our lives only on rare occasions. It is true that our lives are made more miserable by government officials demanding bribes for all sorts of things, but what about the everyday lying andcheating and breaking of rules with people who are strangers ?Let me give you an example that many of us have experienced. I prefer buying my fruits and vegetables from roadside vendors rather than chain stores. 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Read the following passage carefully and answer the questions given below it. Certain words/phrases have beenunderlineto help you locate them while answering some of the questions.The modern world requires us to repose trust in many anonymous institutions. We strap ourselves in a flying tin can with two hundred other people not because we know the pilot but because we believe that airline travel is safe. Our trust in these institutions depends on two factors : skills and ethics. We expect that the people who run these institutions know what they are doing, that they build and operate machines that work as they are supposed to and that they are looking out for our welfare even though we are strangers.When one of these factors is weak or absent, trust breaks down and we either pay a high price in safety- as in the Bhopal tragedy -or a large ‘welfare premium’ such as the elaborate security measures at airports. Trust-deficient environments work in the favour of the rich and powerful, who can commandpremiumtreatment and afford welfare premiums. Poor people can command neither; which is why air travel is safer than train travel, which in turn is safer than walking by the road side.Every modern society depends on the trust in the skills and ethics of a variety of institutions such as schools and colleges, hospital and markets. If we stopped believing in theexpertiseof our teachers, doctors and engineers, we will stop being a modern society.As the Institution among institutions, it is the duty of the state to ensure that all other institutions meet their ethicalobligations. The Indian state has failed in its regulatory role. Consequently, we cannot trust our schools to turn out good graduates, we cannot ensure that our colleges turn out well trained engineers and we cannot guarantee that our engineers will turn out to be good products.Last year, I was invited to speak at an undergraduate research conference. Most of the participants in this conference were students at the best engineering colleges in the State. One student who was driving me back and forthrecounteda story about the previous year’s final exam. One of his papers had a question from a leading textbook to which the textbook’s answer was wrong. The student was in a dilemma : should he write the (wrong) answer as given in the textbook or should he write the right answer using his own analytical skills. He decided to do the latter and received a zero on that question. Clearly, as the student had suspected, the examiners were looking at the textbook answer while correcting the examination papers instead of verifying its correctness.The behaviour of these examiners is a breakdown of institutional morals, with consequences for the skills acquired by students. I say institutional morals, for the failure of these examiners is not a personal failure. At the same conference I met a whole range of college teachers, all of whom were drafted as examiners at some time or the other. Without exception, they were dedicated individuals who cared about the education and welfare of their students. However, when put in the institutional role of evaluating an anonymous individual, they fail in fulfilling their responsibilities. When some of our best colleges are run in this fashion, is it any wonder that we turn outunskilledengineers and scientists ? If, as we are led to expect, there is a vast increase in education at all levels and the regulatory regime is as weak as it is currently, isn’t it likely that the trust deficit is only going to increase ?We are all aware of the consequences of ignoring corruption at all levels of society. While institutional failures in governance are obvious, I think the real problem lies deeper, in the failure of every day institutions that are quite apart from institutions that impinge on our lives only on rare occasions. It is true that our lives are made more miserable by government officials demanding bribes for all sorts of things, but what about the everyday lying andcheating and breaking of rules with people who are strangers ?Let me give you an example that many of us have experienced. I prefer buying my fruits and vegetables from roadside vendors rather than chain stores. To the vendor, I am probably an ideal customer, since I do not bargain and I do not take hours choosing the best pieces, instead, letting the vendor do the selecting. The market near my house is quite busy; as a result, most vendors are selling their wares to strangers. It takes a while before a particular vendor realises that I am arepeatcustomer. In such a situation trust is crucial. I have a simple rule : if a vendorpalms offa bad piece whose defects are obvious, I never go back to that person again. It is amazing how often that happens.In my opinion, the failure of institutional ethics is as much about these little abuses of trust as anything else. Everyday thievery is like roadside trash; if you let it accumulate the whole neighbourhood stinks.Q. Which of the following is possibly the most appropriate title for the passage ?

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___________ is a money market instrument with a fixed maturity, typically ranging from 7 days to 1 year, issued by banks and financial institutions.a)Commercial Paperb)Certificates of Depositc)Repod)Bill Rediscounting SchemeCorrect answer is option 'B'. Can you explain this answer?
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