Page 4 - Lesson Note 1

call money rates makes other sources of finance such as commercial paper and certificates of
deposit cheaper in comparison for banks raise funds from these sources.

4. Certificate of Deposit: Certificates of deposit (CD) are unsecured, negotiable, short-term
instruments in bearer form, issued by commercial banks and development financial institutions.
They can be issued to individuals, corporations and companies during periods of tight liquidity
when the deposit growth of banks is slow but the demand for credit is high. They help to
mobilize a large amount of money for short periods.

5. Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital

requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which
is used to finance the credit sales of firms. When goods are sold on credit, the buyer becomes
liable to make payment on a specific date in future. The seller could wait till the specified date
or make use of a bill of exchange. The seller (drawer) of the goods draws the bill and the buyer
(drawee) accepts it. On being accepted, the bill becomes a marketable instrument and is called
a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill
matures. When a trade bill is accepted by a commercial bank it is known as a commercial bill.

Classification of Financial Markets

Difference between capital market and money market