Previous Year Question
With reference to the Indian economy, ‘Collateral Borrowing and Lending Obligations’ are the instruments of:
Bond market
Forex market
Money market
Stock market
Correct Answer: C
Detailed Solution
Collateralised Borrowing and Lending Obligation, or CBLO, was a collateralised money-market instrument developed to facilitate short-term borrowing and lending of funds among market participants.
The money market generally deals in short-term funds and highly liquid financial instruments having a maturity of up to one year. Treasury Bills, Commercial Papers, Certificates of Deposit, call/notice money, repos and triparty repos are important money-market instruments.
The principal features of CBLO were:
A borrowing participant placed eligible securities, primarily government securities, as collateral.
It enabled participants to borrow short-term funds or invest their temporary surplus funds.
Transactions were undertaken through an electronic book-entry system.
The Clearing Corporation of India Limited—CCIL played a major role in its operation and settlement.
The availability of collateral reduced the lender’s counterparty and credit risk compared with unsecured call-money transactions.
Present position: Following regulatory changes made by the Reserve Bank of India, CBLO was replaced by Triparty Repo—TREPS with effect from 5 November 2018. This subsequent replacement does not alter its original economic classification: CBLO was a money-market instrument.
It was not a bond-market instrument because the bond market primarily deals in medium- and long-term debt securities. It was also unrelated to the foreign-exchange and stock markets.