Economics • Banking & FinanceMedium
What is the primary purpose of introducing 'Certificate of Deposit (CD)' in the Indian money market?
A. To enable commercial banks and financial institutions to mobilize wholesale bulk deposits from corporates and institutions✓ Correct Answer
B. To provide long-term capital support for greenfield infrastructure projects
C. To regulate foreign portfolio investment inflows into equity markets
D. To facilitate retail peer-to-peer lending transactions
💡 Solution & Explanation
Certificates of Deposit were introduced in India to enable commercial banks and financial institutions to mobilize wholesale bulk funds from corporate entities, financial institutions, and mutual funds at market-determined rates. Unlike retail bank deposits, they are negotiable money market instruments issued in dematerialized form for a specified maturity period. They differ fundamentally from long-term capital instruments and retail lending facilities.
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