Economics • Banking & FinanceMedium
What is a 'Certificate of Deposit (CD)' in the Indian money market?
A. A negotiable money market instrument issued in dematerialized form or as a usance promissory note against funds deposited at a bank for a specified time✓ Correct Answer
B. A long-term equity share issued by public sector banks
C. A government bond sold exclusively to foreign institutional investors
D. An unsecured loan provided by the central bank to commercial banks
💡 Solution & Explanation
A Certificate of Deposit functions as a negotiable money market instrument issued in dematerialized form or as a usance promissory note against funds deposited at a bank for a specified period, acting as a short-term borrowing tool for banks. Unlike long-term equity shares or central bank loans, certificates of deposit can be traded freely in the secondary market. They are issued by scheduled commercial banks and select financial institutions to mobilize wholesale bulk deposits.
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