0200 Most important current issues prelims 2018
1.Masala Bond
Debt- bond
- I write on a piece of paper: “To whoever pays me Rs.1000, I’ll pay annual 10% interest rate (Rs.100). And after five years, I’ll also repay the principal amount Rs.1000. No “ifs” and “buts”. This is one type of security paper. We call it “BOND”.
- If you hold my bonds, I’m liable to pay you money no matter what happens.
About Masala bonds
- Masala bonds are rupee-denominated bonds issued by Indian entities in the overseas market to raise funds.
- As of now, it is being traded only at the London Stock exchange.
- Masala bonds have been named so by the International Finance Corporation (IFC), an investment arm of the World Bank which issued these bonds to raise money for infrastructure projects in India.
- They protect investors from exchange rate fluctuations as opposed to external commercial borrowing (ECB) that have to be raised and repaid in a dollar.
Prelims prediction
1. With reference to the Masala Bonds, consider the following statements:
- It will facilitate rupee denominated borrowing from overseas.
- The currency risk or exchange rate risks are borne by the investors.
- Multilateral and regional financial institutions are not allowed to invest in these bonds.
Which of the statements given above is/are correct?
(a) One only
(b) 1 and two only
(c) 2 and three only
(d) 1, 2 and 3
