With reference to the Indian economy, 'Collateral Borrowing and Lending Obligations' are the instrum

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UPSC Prelims is a competitive examination conducted in India. This question is from the 2024 UPSC Prelims Economy paper.

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Question

With reference to the Indian economy, 'Collateral Borrowing and Lending Obligations' are the instruments of:

Accepted Answer

Correct Answer: C — Money marketStep-by-step Solution:Collateral Borrowing and Lending Obligations (CBLO) are instruments of the money market in India. The money market deals in short-term borrowing and lending (typically less than one year), and CBLOs are a specific short-term, secured instrument in this space.What is CBLO: A CBLO is a money market instrument that represents an obligation between a borrower and a lender. The borrower provides eligible securities (mainly G-Secs, Treasury Bills, and SDL — State Development Loans) as collateral and borrows funds for a short period (overnight to 90 days). The lender receives the collateral as security and earns interest. In India, CBLOs are operated by the Clearing Corporation of India Ltd. (CCIL) in a fully electronic, anonymous, and multilateral platform. The interest rate on CBLOs (CBLO rate) is closely linked to the repo rate and serves as a reference rate for overnight money market transactions. Participants include: Banks, NBFCs, Primary Dealers, Mutual Funds, Insurance Companies, and other financial institutions.Why other options are incorrect:Option A (Bond market): The bond market deals in longer-term debt instruments — Government Securities (2–40 years maturity), corporate bonds, debentures. CBLO is a short-term (overnight to 90 days) collateralised instrument — it belongs to the money market, not the bond market. ✗Option B (Forex market): The forex (foreign exchange) market deals in buying and selling of foreign currencies — spot, forward, futures, and options contracts on currency pairs. CBLO is a domestic rupee-denominated short-term lending instrument, not a forex instrument. ✗Option D (Stock market): The stock market (equity market) deals in shares/equities of companies. CBLO is a debt/lending instrument, not an equity instrument. ✗Key Concept: India's Money Market instruments: Call Money Market: Unsecured overnight lending between banks; rate = Call Rate; highly liquid but unsecured. Notice Money: Unsecured lending for 2–14 days; Term Money: Unsecured lending for 15–365 days. Treasury Bills (T-Bills): RBI-issued short-term government securities (91, 182, 364 days); zero coupon (discount instruments). Commercial Paper (CP): Short-term unsecured promissory notes issued by corporates/FIs (7 days to 1 year); minimum ₹5 lakh denomination. Certificates of Deposit (CDs): Short-term negotiable money market instruments issued by banks (7 days to 1 year); FIs (1–3 years). Repo and Reverse Repo: RBI's LAF tool; collateralised short-term borrowing/lending; Repo rate = key policy rate. CBLO: Collateralised short-term borrowing via CCIL; G-Secs as collateral; anonymous electronic platform; overnight to 90 days. Note: CBLO was merged/restructured into the Triparty Repo (TREP) system in 2018, with CCIL continuing as the central counterparty. TREP is now the more commonly used term for what was CBLO.

With reference to the Indian economy, 'Collateral Borrowing and Lending Obligations' are the instruments of:

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With reference to the Indian economy, 'Collateral Borrowing and Lending Obligations' are the instruments of:

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