23 extra multiple-choice questions for Money Market (12th Standard Commerce, Samacheer Kalvi), beyond the ones printed in the textbook — each with the correct option highlighted and a clear, worked explanation. Free to read in English and Tamil.
Q1
The money market deals with financial assets and securities whose maturity period does not exceed ____.
- A. three months
- B. six months
- C. one yearCorrect
- D. five years
Explanation. The money market is a market for purely short-term funds. It deals with financial assets and securities whose maturity period does not exceed one year, such as treasury bills and commercial bills.
Q2
Who described the money market as "the collective name given to the various firms and institutions that deal in the various grades of near money"?
- A. CrowtherCorrect
- B. The Reserve Bank of India
- C. E. Gordon
- D. L. Natarajan
Explanation. This definition is Crowther's. The RBI's definition instead calls the money market a market for short-term financial assets that are close substitutes for money.
Q3
Consider the following statements about the money market:
1) There is no formal place like a stock exchange; transactions mostly take place over the phone.
2) It is a single homogeneous market.
3) It is a wholesale market where the volume of funds traded is very large.
Which of these are correct?
- A. 1 and 2 only
- B. 1 and 3 onlyCorrect
- C. 2 and 3 only
- D. 1, 2 and 3
Explanation. Statement 2 is wrong: the money market is not a single homogeneous market but comprises several sub-markets such as the call money market, acceptance market and bill market. Statements 1 and 3 are characteristics given in the lesson.
Q4
Which institutions are described as the nerve centre of the whole money market?
- A. Discount houses
- B. Commercial banksCorrect
- C. Insurance companies
- D. Mutual funds
Explanation. Commercial banks are the nerve centre of the money market. They are the principal suppliers of short-term funds and the vital link between the central bank and the various segments of the money market.
Q5
Pick the odd one out with respect to the sub-markets of the money market.
- A. Call money market
- B. Acceptance market
- C. Bill market
- D. Stock exchangeCorrect
Explanation. The call money market, acceptance market and bill market are sub-markets of the money market. A stock exchange is the formal place of transaction of the capital market.
Q6
According to the comparison table in the lesson, the minimum value of a treasury bill is ____.
- A. Rs 10
- B. Rs 100
- C. Rs 25,000Correct
- D. Rs 5 lakhs
Explanation. Money market instruments are of large amounts: a treasury bill is of minimum Rs 25,000, and each certificate of deposit or commercial paper is of minimum Rs 5 lakhs. Rs 10 and Rs 100 are share and debenture values.
Q7
Who is the regulator of the money market?
- A. SEBI
- B. The Central BankCorrect
- C. Stock exchanges
- D. Merchant bankers
Explanation. The Central Bank is the regulator of the money market. In the capital market, besides the Central Bank, a special regulatory authority like SEBI regulates the market.
Q8
Consider the following about the capital market as compared with the money market:
1) Underwriting is a primary function.
2) It has low credit and market risk.
3) A price discovery mechanism exists in it.
Which of these are correct?
- A. 1 and 2 only
- B. 1 and 3 onlyCorrect
- C. 2 and 3 only
- D. 1, 2 and 3
Explanation. In the capital market underwriting is a primary function and price discovery exists, but it carries high credit and market risk. Low risk, high liquidity and no price discovery describe the money market.
Q9
Pick the odd one out: which of these is NOT one of the new money market instruments that came into existence in India after 1986?
- A. Commercial Papers
- B. Certificate of Deposits
- C. Treasury BillsCorrect
- D. Repo Instruments
Explanation. Till 1986 only treasury bills, call and short notice money, and commercial bills with promissory notes were available. Commercial papers, certificates of deposit, inter-bank participation certificates and repo instruments came later.
Q10
On the basis of periodicity, which of the following is NOT a type of treasury bill?
- A. 91 days
- B. 182 days
- C. 273 daysCorrect
- D. 364 days
Explanation. Treasury bills are classified by periodicity into three types: 91 days, 182 days and 364 days treasury bills. There is no 273 days treasury bill in the lesson.
Q11
Assertion (A): Treasury bills are very popular and enjoy a higher degree of liquidity.
Reason (R): Treasury bills are issued by the Government.
- A. Both A and R are true and R is the correct explanation of ACorrect
- B. Both A and R are true but R is not the correct explanation of A
- C. A is true but R is false
- D. A is false but R is true
Explanation. The lesson states that treasury bills enjoy a higher degree of liquidity since they are issued by the Government, which promises to pay the stated amount to the bearer on the due date.
Q12
Consider the following statements about treasury bills:
1) 91 days treasury bills are issued at a fixed discount rate of 4 per cent as well as through auctions.
2) The RBI issues 91 days and 182 days treasury bills on tap basis throughout the week.
3) 364 days treasury bills carry a fixed rate of interest.
Which of these are correct?
- A. 1 and 2 onlyCorrect
- B. 2 and 3 only
- C. 1 and 3 only
- D. 1, 2 and 3
Explanation. Statement 3 is wrong: 364 days treasury bills do not carry any fixed rate; their discount rate is quoted in auction by participants. Statements 1 and 2 are given in the lesson.
Q13
Due to their negotiable feature, certificates of deposit are also known as ____.
- A. Negotiable certificates of depositCorrect
- B. Inter-bank participation certificates
- C. Gilt-edged securities
- D. Accommodation bills
Explanation. A certificate of deposit is transferable from one party to another. Because of this negotiable feature it is also known as a negotiable certificate of deposit.
Q14
Which of the following is NOT a feature of a certificate of deposit?
- A. It is issued at a discount to face value
- B. It is repayable on a fixed date without grace days
- C. It is a secured instrument backed by a charge on assetsCorrect
- D. It is freely transferable by endorsement and delivery
Explanation. A certificate of deposit is an unsecured negotiable instrument. The other three, issue at a discount, repayment on a fixed date without grace days and transfer by endorsement and delivery, are listed features.
Q15
Commercial bills are generally of ____ maturity.
- A. 7, 14 and 21 days
- B. 30, 60 and 90 daysCorrect
- C. 91, 182 and 364 days
- D. 1, 3 and 5 years
Explanation. A commercial bill is a bill of exchange issued by a commercial organisation to raise money for short-term needs, with maturities of 30 days, 60 days and 90 days. 91, 182 and 364 days are treasury bill periods.
Q16
Match the type of commercial bill with its description:
a) Demand bill - 1) Not arising out of genuine trade transactions
b) Documentary bill - 2) No specific time of payment mentioned
c) Indigenous bill - 3) Accompanied by documents of title to goods
d) Accommodation bill - 4) Governed by native custom or usage of trade
- A. a-2, b-3, c-4, d-1Correct
- B. a-3, b-2, c-1, d-4
- C. a-2, b-4, c-3, d-1
- D. a-1, b-3, c-4, d-2
Explanation. A demand bill has no fixed time of payment, a documentary bill carries documents of title such as a railway or lorry receipt, indigenous bills follow native custom, and accommodation bills do not arise from genuine trade.
Q17
Which of the following is NOT a purpose for which government securities are issued?
- A. Refunding the maturing securities
- B. Advance refunding of securities not yet matured
- C. Raising fresh cash resources
- D. Financing the working capital of private companiesCorrect
Explanation. Government securities are issued to refund maturing securities, for advance refunding of securities that have not yet matured, and for cash financing, that is, raising fresh cash resources.
Q18
As each sale and purchase has to be negotiated separately, the gilt-edged market is a/an ____.
- A. Over-The-Counter marketCorrect
- B. Auction market
- C. Formal stock exchange market
- D. Call money market
Explanation. Because every sale and purchase of gilt-edged securities is negotiated separately, the gilt-edged market is an Over-The-Counter market. It has two segments, the primary market and the secondary market.
Q19
Which office of the RBI undertakes to issue government securities?
- A. Public Debt OfficeCorrect
- B. Department of Banking Supervision
- C. Monetary Policy Department
- D. Treasury Bill Office
Explanation. Under the issue mechanism of government securities, the Public Debt Office (PDO) of the RBI undertakes to issue government securities. A notification is made a few days before public subscription opens.
Q20
Match the term with its meaning in the government securities market:
a) Grooming - 1) Purchase of one security against the sale of another by the RBI
b) Switching - 2) Securities sold to the highest bidder
c) Auctioning - 3) RBI acquiring securities nearing maturity to facilitate redemption
d) Tax rebate - 4) Incentive that makes these securities popular with investors
- A. a-3, b-1, c-2, d-4Correct
- B. a-1, b-3, c-2, d-4
- C. a-3, b-2, c-1, d-4
- D. a-2, b-1, c-3, d-4
Explanation. Grooming is the RBI's acquisition of securities nearing maturity to ease redemption; switching is buying one security against selling another in open market operations; auctioning sells to the highest bidder; tax incentives make the securities popular.
Q21
Which is the oldest, most developed and leading money market in the world?
- A. New York Money Market
- B. London Money MarketCorrect
- C. Tokyo Money Market
- D. Mumbai Money Market
Explanation. The lesson's box states that the London Money Market is the oldest, most developed and leading money market in the world, and the New York Money Market ranks second, next only to London.
Q22
Which of the following describes the liquidity profile of gilt-edged securities in the lesson?
- A. Securities issued by the Central Government have high liquidityCorrect
- B. All gilt-edged securities have uniform liquidity
- C. Gilt-edged securities cannot be sold before maturity
- D. Only State Government securities are liquid
Explanation. The liquidity profile of gilt-edged securities varies, and accordingly the liquidity profile of securities issued by the Central Government is high. They also offer guaranteed interest and repayment of principal.
Q23
Certificates of deposit are issued in the form of ____.
- A. Usance promissory notesCorrect
- B. Share certificates
- C. Demand bills
- D. Bearer bonds of the State Government
Explanation. Certificates of deposit are short-term deposit instruments issued by banks and financial institutions to raise large sums, and they are issued in the form of usance promissory notes with a stated face value and maturity.
