Explain: (i) Call Money (ii) Commercial Bill as money market instruments.
Answers
(a) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par.
(b) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital.
(c) Call Money: Call money is short-term finance repayable on demand with a maturity period of one day to fifteen days used for inter-bank transactions. It is primarily used by Commercial Banks to maintain a minimum cash balance known as cash reserve ratio (CRR) as stipulated by the RBI.