UPSC Prelims 2016 · Question 33 of 98
UPSC Prelims 2016 question on Masala Bonds
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicSecurity Market in India
- DifficultyMedium
- TypeStatement
With reference to ‘Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct?
1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.
Select the correct answer using the code given below.
Show answer
Answer: C. Both 1 and 2
Verdict
The answer is both 1 and 2. The International Finance Corporation is an arm of the World Bank, and Masala Bonds are rupee denominated debt instruments.
Analysis
Statement 1 is CORRECT. The International Finance Corporation is the private sector investment arm of the World Bank Group, and it issued a one thousand crore rupee bond to fund infrastructure projects in India. Statement 2 is CORRECT. Masala Bonds are rupee denominated bonds issued outside India, so the issuer raises foreign money while the currency risk stays with the investor rather than the borrower, and they serve as a debt financing source for both public and private sector entities.
Source
Press Information Bureau material and The Hindu reporting on Masala Bonds.
How to crack it
The defining feature is the currency of denomination, not the location of issue, and that single idea explains the whole family of named bonds. Masala bonds are rupee denominated, Dim Sum bonds are renminbi denominated, Samurai bonds are yen denominated and issued in Japan by a foreigner. Ask which currency the instrument is written in and who therefore bears exchange risk, and every question of this type resolves without recalling the issue details.