Q.Explain the meaning of the money market.

The economic term is Demand deposits.

Commercial banks accept two broad kinds of deposits. Time (term) deposits, such as fixed deposits, are locked in for a fixed period. Demand deposits are repayable by the bank whenever the customer asks for them — typically current-account and savings-account balances, usually operated through cheques. Because they can be spent immediately, demand deposits are treated as part of the money supply (bank money / near-money).

The Indian money market has two parts. The unorganised sector works outside RBI control and includes indigenous bankers, money lenders (a), hundis (c) and chit funds (d). The commercial bank (b) is part of the organised sector. Correct option: a, c, d.

Why: The money market deals in short-term funds. Its organised sector — the RBI, commercial banks, co-operative banks and financial institutions — is systematic, regulated and follows RBI directions. Its unorganised sector operates informally, charges high and varied interest rates, keeps little written record and lies largely outside RBI regulation. Money lenders, indigenous bankers who deal in hundis (indigenous credit instruments), and chit funds are the classic constituents of this unorganised segment. A commercial bank, being regulated and part of the formal banking system, is organised — so it does not belong to the unorganised market.

The economic term is Demand deposits — bank deposits repayable on demand, withdrawable at any time without prior notice. Answer: Demand deposits.

Why: Bank deposits are broadly of two types:

• Demand deposits — money kept in current and savings accounts that the depositor can withdraw on demand, whenever required, by cheque or otherwise. Because they are instantly withdrawable, they are treated as part of money supply.
• Time (term) deposits — deposits kept for a fixed period (fixed/recurring deposits) that cannot be withdrawn before maturity without penalty.

Since the definition stresses withdrawal 'on demand', the term is demand deposits.

The correct option is Assertion (A) is true but Reasoning (R) is false.

The money market is the market for short-term funds and near-money instruments. Assertion (A) is true: by allowing borrowing and lending through instruments such as treasury bills, commercial paper and certificates of deposit, the money market lets participants meet short-term needs without holding large idle cash balances, thereby economising the use of cash. Reasoning (R) is false: the money market does deal with financial instruments that are close substitutes for money (near-money assets) — that is exactly its nature. So A is true but R is false.

The correct alternative is Accepting deposits. (Detailed commercial-banking functions are from the older syllabus.)

The primary functions of a commercial bank are (i) accepting deposits and (ii) lending money. Purchasing and selling securities and providing a safe-deposit vault are general utility services, and issuing a letter of credit is also a utility/agency service. Therefore, accepting deposits is the primary function of commercial banks.

The statement is True. (Detailed commercial-banking content is from the older syllabus.)

Commercial banks accept deposits, provide loans and credit, finance trade, industry and agriculture, and help create money and mobilise savings for investment. Because the whole modern economy depends on this credit and payment machinery, commercial banks are rightly described as the backbone of the modern economy.