Ans: C
Exp: 

Statement 1 is correct: Financial markets facilitate easy purchase and sale of financial assets such as shares, bonds, etc. In doing so, they provide liquidity to financial assets so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanisms of the financial market.

Statement 2 is correct: Financial markets are classified on the basis of the maturity of financial instruments traded in them. Instruments with a maturity of less than one year are traded in the money market. Instruments with a longer maturity are traded in the capital market.

Ans: D

Exp:

The primary market deals with new securities being issued for the first time. It is also known as the new issue market. It facilitates the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds, and individuals. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans, and deposits. In the Primary market, the prices are determined and decided by the management of the company. The secondary market is a market for the purchase and sale of existing securities. It provides liquidity and marketability to existing securities. In the secondary market, prices are determined by demand and supply for the securities. The major intermediaries in the secondary market are brokers, jobbers etc. Both the Primary and Secondary market deals with Debt and Equity instruments.

Ans: D

Exp:

The money market is a market for short-term funds that deals in monetary assets whose period of maturity is up to one year. These assets are close substitutes for money. It is a market where low-risk, unsecured, and short-term debt instruments that are highly liquid are issued and actively traded every day. 

Some of the common money market instruments are–

• Call Money

• Treasury Bill (T-Bill)

• Cash Management Bill (CMB)

• • Ways and Means Advances (WMAs)

• Certificate of Deposit (CD)

• Commercial Paper (CP)

• Commercial Bill (CB)

Ans: C

Exp:

Statement 1 is correct: Treasury bills are issued in the form of a short-term promissory note. They are highly liquid and have assured yield and negligible risk of default. They are issued at a price which is lower than their face value and repaid at par. The difference between the price at which the treasury bills are issued and their redemption value is the interest receivable on them and is called a discount. 

Statement 2 is incorrect: T-bills are issued by the Central Government, and the bills are sold by the RBI on behalf of the government, while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).

Statement 3 is correct: Treasury bills are money market instruments used to finance short-term requirements of the Government of India. The RBI sells T-Bills on behalf of the Central Government as it is a banker to the government.

Ans: A

Exp:

Statement 1 is incorrect: Masala Bonds are rupee-denominated bonds that can be issued by entities such as governmental bodies, Non-Bank Financial Companies (NBFCs) and eligible corporates to raise money from overseas markets.

Statement 2 is correct: The first Masala Bond was issued by the International Finance Corporation (IFC) in 2014 to raise Rs 1,000 crore to fund infrastructure projects in India. The word ‘masala’ was used by IFC (arm of World Bank Group) to symbolise the culture of India for specifically distinguishing Indian rupee-denominated bonds from other bonds. Similarly, ‘Dim Sum Bonds’ are used for bonds issued in Hong Kong, denominated in Chinese Renminbi and Komodo Bonds for Indonesia.

Statement 3 is incorrect: The Masala Bonds cannot be used for real estate activities other than for the development of integrated township or affordable housing projects. It also cannot be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.