Economics · Money Market
If a Scheduled Commercial Bank needs to borrow funds overnight to cover its short-term CRR requirements and a Primary Dealer is permitted to participate in the Call Money Market, which statement accurately reflects the regulatory restrictions on Primary Dealers and the maximum tenor in the Call Money Market?
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- 1Scheduled Commercial Banks can act as both borrowers and lenders, while Primary Dealers are permitted to operate as both borrowers and lenders in the Call Money Market; the maximum tenor for Call Money is 1 day (overnight).✓
- 2Both entities are completely prohibited from transacting with each other in the Call Money Market and can only use the RBI's Liquidity Adjustment Facility.
- 3The commercial bank will borrow in the Notice Money Market where the primary dealer acts only as a lender; the maximum tenor is 7 days.
- 4Both entities can borrow and lend from each other up to a maximum tenor of 14 days.
Correct answer
Scheduled Commercial Banks can act as both borrowers and lenders, while Primary Dealers are permitted to operate as both borrowers and lenders in the Call Money Market; the maximum tenor for Call Money is 1 day (overnight).
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