Question

Which instrument of Money Market is known as "Bridge Financing"?

• A. Commercial Paper
• B. Call Money
• C. Certificate of Deposit
• D. Commercial Bill

Answer 1

The Correct Option is D

In the Money Market, the instrument known as "Bridge Financing" is the Commercial Bill. 

To understand why a commercial bill is considered a type of bridge financing, let's break down the key concepts:

• Commercial Bill: It is a short-term financial instrument used by companies to finance their day-to-day operations. It is essentially a promise to pay a specific amount at a future date, primarily used to bridge the gap between the supply of goods and the receipt of payment from customers. This makes commercial bills a form of bridge financing, as they help firms manage their immediate cash flow needs until longer-term financing becomes available or pending payments are received.

In conclusion, a commercial bill assists businesses in managing short-term liquidity needs, connecting the gap between payable and receivable timelines, and hence is associated with bridge financing in the context of Money Market instruments.

Answer 2

A Commercial Bill is often used as a form of bridge financing in the money market. It is a short-term instrument used by companies to finance their working capital needs by borrowing against their receivables. These bills help businesses manage liquidity by providing quick access to funds, typically for a short duration, before the receivables are collected.