With reference to the Indian economy, consider the following statements: 1) ‘Commercial Paper’ is a short-term unsecured promissory note. 2) ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation. [2020]

With reference to the Indian economy, consider the following statements:

‘Commercial Paper’ is a short-term unsecured promissory note.
‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
‘Call Money’ is a short-term finance used for interbank transactions.
‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Commercial paper is an unsecured, short-term debt instrument issued by corporations to meet immediate financial needs such as payroll, accounts payable, and inventory financing. It is typically issued at a discount to its face value, and investors earn returns from the difference between the purchase price and the face value at maturity. Although commercial paper carries lower credit risk than many other short-term instruments, it generally offers higher yields, making it an attractive option for investors seeking short-term returns.

Certificates of Deposit (CDs) are negotiable money market instruments issued in demat form or as Usance Promissory Notes by banks and financial institutions. Banks issue CDs with maturities ranging from 7 days to 1 year, while financial institutions can issue them for 1 year to 3 years. CDs function similarly to bank term deposits; however, unlike traditional time deposits, they are freely negotiable, and hence are often referred to as Negotiable Certificates of Deposit. They typically offer higher returns than bank term deposits, making them attractive to investors. Additionally, CDs are rated by approved credit rating agencies such as CRISIL, ICRA, CARE Ratings, and Fitch Ratings, which enhances their credibility and improves their tradability in the secondary market depending on demand.

Call Money is a very short–term loan, usually overnight, utilised by banks to fulfil urgent liquidity requirements. It operates within the money market, facilitating short-term borrowing and lending between banks, known as interbank transactions. It allows banks to earn interest, known as the call loan rate, on their surplus funds.

A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full-face value.