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Mr. Rehan has done a diploma in Financial market and its participants. Recently he got a chance to present his knowledge and train students in a school. He told students about various money market instruments. He mentioned about an instrument which is issued by R.B.I on behalf of Central Government. He told students that Banks use a system to borrow money (an instrument) to manage their CRR i.e Cash Reserve Ratio. Later, he mentioned a short term self liquidating instrument like Bills of Exchange that can be used for arranging working capital. He also told students about an instrument that helps to mobilise large amounts of money in short period by commercial banks. Lastly, Mr. Rehan spoke about an instrument that works as a replacement towards bank borrowing for large credit-worthy companies, its maturity period is 15 days to one year.

"A short term self liquidating like Bills of Exchange than can be used for arranging working capital".

Which Money Market instrument, was Mr. Rehan referring to?

Solution

Correct Option: 3

Commercial Bills are short-term, negotiable, self-liquidating instruments (Bills of Exchange) used by firms to finance their working capital needs. They arise out of credit sales and can be discounted with banks before maturity.

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