Dear Samacheer Kalvi Students, here are the Money Market – Class 12 Text Book Solutions for your reference and study.
Click here for Commerce Text Book Solutions Lessons 1-28
I. Choose the Correct Answers:
| 1. The money invested in the call money market provides high liquidity with: | |
| a) Low Profitability | |
| b) High Profitability | |
| c) Limited Profitability | |
| d) Medium Profitability | |
| 2. A major player in the money market is the: | |
| a) Commercial Bank | |
| b) Reserve Bank of India | |
| c) State Bank of India | |
| d) Central Bank | |
| 3. Debt Instruments are issued by Corporate Houses to raise short-term financial resources from the money market are called: | |
| a) Treasury Bills | |
| b) Commercial Paper | |
| c) Certificate of Deposit | |
| d) Government Securities | |
| 4. The market for buying and selling of Commercial Bills of Exchange is known as a: | |
| a) Commercial Paper Market | |
| b) Treasury Bill Market | |
| c) Commercial Bill Market | |
| d) Capital Market | |
| 5. A marketable document of title to a time deposit for a specified period may be referred to as a: | |
| a) Treasury Bill | |
| b) Certificate of Deposit | |
| c) Commercial Bill | |
| d) Government Securities |
II. Very Short Answer Questions:
1. What is a CD market?
Answer: CD means Certificate of Deposits. A market where Certificate of Deposits are bought and sold is called CD Market.
2. What is Government Securities Market?
Answer: A market where the Government or gilt-edged securities can be bought and sold is called Government Securities Market.
3. What do you meant by Auctioning?
Answer: A method of trading where merchants bid against one another and where the securities are sold to the highest bidder is known as auctioning.
4. What do you meant by Switching?
Answer: The purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations is described as Switching.
III. Short Answer Questions:
1. What are the features of Treasury Bills? (any 3)
Answer: A Treasury bill is a promissory note issued for a specified period stated therein. Treasury bills enjoy a higher degree of liquidity since they are issued by the Government. The period does not exceed a period of one year. The features of Treasury Bills include:
- Issuer
- Finance Bills
- Liquidity
- Vital Source
- Monetary Management
2. Who are the participants of Money Market? (any 3)
Answer: The participants operating in the Money Market are:
- Government of different countries
- Central Banks of different countries
- Private and Public Banks
- Mutual Funds Institutions
- Insurance Companies
- Non-Banking Financial Institutions
- RBI and SBI
- Commercial Banks
- State Governments
- Public
3. Explain the types of Treasury Bills? (any 3)
Answer: On the basis of periodicity, Treasury Bills may be classified into three types. They are:
1) 91 days Treasury Bills
2) 182 days Treasury Bills and
3) 364 days Treasury Bills
91 days Treasury Bills are issued at a fixed discount rate of 4 per cent as well as through auctions. The RBI holds 91 days and 182 Treasury Bills and they are issued on tap basis throughout the week. 364 days Treasury Bills do not carry any fixed rate. The discount rate on these bills are quoted in auction by the participants and accepted by the authorities. Such a rate is called cut off rate.
4. What are the types of Commercial Bill? (any 3)
Answer: The types of Commercial Bills are
a. Demand Bills
A demand bill is one where no specific time of payment is mentioned. They are payable immediately when they are presented to the drawee.
b. Clean bills and documentary Bills
Bills that are accompanied by documents of title to goods are called documentary bills. Clean bills are drawn without accompanying any document. E.g. Railway Receipt and Lorry Receipt
c. Inland bills and Foreign Bills
Bills that are drawn and payable in India on a person who is resident in India are called inland bills. Bills that are drawn outside India and are payable either in India or outside India are called foreign bills.
d. Indigeneous Bills
The drawing and acceptance of indigenous bills are governed by native custom or usage of trade.
e. Accommodation Bills
Accommodation bills are those which do not arise out of genuine trade of transactions.
IV. Long Answer Questions:
1. Differenciate between the Money Market and Capital Market. (any 5)
Answer:
| Features | Money Market | Capital Market |
| Duration of Funds | It is a market for short-term loanable funds for a period of not exceeding one year. | It is a market for long-term funds exceeding period of one year. |
| Deals with Instruments | It deals with instruments like commercial bills (bill of exchange, treasury bill, commercial papers etc.). | It deals with instruments like commercial bills (bill of exchange, treasury bill, commercial papers etc.). |
| Money Value | Each single money market instrument is of large amount. A treasury bill is of minimum for Rs. 25000. Each certificate of deposits or commercial paper is for minimum of Rs. 5 lakhs. | Each single capital market instrument is of small amount. Each share value is Rs. 10. Each debenture value is Rs. 100. |
| Role of Major Institution | The central bank and commercial banks are the major institutions in the money market. | Development banks and Insurance companies play a dominant role in the capital market. |
| Place of Transaction | Transactions mostly take place over the phone and there is no formal place. | Transactions take place at a formal place. Eg. stock exchange |
2. Explain the characteristics of Money Market? (any 5)
Answer: The characteristics of Money Market include:
1. Short-term Funds
It is a market purely for short-term funds or financial assets called near money.
2. Maturity Period
It deals with financial assets having a maturity period upto one year only.
3. Conversion of Cash
It deals with only those assets which can be converted into cash readily without loss and with minimum transaction cost.
4. No Formal Place
Generally, transactions take place through phone. Relevant documents and written communications can be exchanged subsequently. There is no formal place like stock exchange as in the case of a capital market.
5. Sub-markets
It is not a single homogeneous market. It comprises of several sub-markets each specialising in a particular type of financing. E.g., Call Money Market, Acceptance Market, Bill Market.
3. What are the characteristics of Government Securities? (any 5)
Answer: The characteristics of Government Securities include:
1. Agencies
Government securities are issued by agencies such as Central Government, State Governments, semi-government authorities like local Government authorities, e.g. municipalities, autonomous institution such as metropolitan authorities, port trusts etc.,
2. RBI Special Role
RBI takes a special and an active role in the purchase and sale of these securities as part of its monetary management exercise.
3. Tax Rebate
A striking feature of these securities is that they offer wide-range of tax incentives to investors. This has made these securities very popular for this benefit.
4. Switching
The purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations is described as Switching.
5. Auctioning
A method of trading whereby merchants bid against one another and where the securities are sold to the highest bidder is known as auctioning.
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