With reference to the Indian economy, consider the following statements:

1. ‘ Commercial Paper’ is a short-term unsecured promissory note.

2. ‘ Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.

3. ‘ Call Money’ is a short-term finance used for interbank transactions.

4. ‘ Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.

Which of the statements given above is/are correct?

The correct option is 1 and 3 only.

Let us analyze each statement step-by-step to understand why statements 1 and 3 are correct, while statements 2 and 4 are incorrect:

Statement 1 is correct:
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Being unsecured, it is typically backed only by the issuing company's promise to pay, making it a short-term unsecured promissory note.

Statement 2 is incorrect:
A Certificate of Deposit (CD) is a negotiable money market instrument and is issued as a dematerialised form or as a Usance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period. CDs are short-term instruments (not long-term), and they are issued by Scheduled Commercial Banks and select All-India Financial Institutions, not by the Reserve Bank of India (RBI) to a corporation.

Statement 3 is correct:
Call Money is a key component of the Indian money market. It refers to short-term finance repayable on demand, with a maturity period varying from one day to fourteen days. It is primarily used for interbank transactions, allowing banks to borrow from one another to meet temporary liquidity mismatches or maintain their Cash Reserve Ratio (CRR) requirements.

Statement 4 is incorrect:
Zero-Coupon Bonds (also known as deep discount bonds) are financial instruments that do not pay periodic interest. Instead, they are issued at a discount to their face value and redeemed at par (face value) upon maturity. The return to the investor is the difference between the purchase price and the redemptive value, meaning they are not "interest-bearing" in the traditional sense. Furthermore, they are typically long-term debt instruments and are issued by corporations, government entities, or financial institutions, not exclusively short-term bonds issued by Scheduled Commercial Banks to corporations.

Therefore, only statements 1 and 3 are correct.