UPSC Prelims 2021 · Question 6 of 97
UPSC Prelims 2021 question on Government Bond Yield Factors
- ExamUPSC CSE
- Year2021
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicSecurity Market in India
- DifficultyMedium
- TypeStatement
Indian Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve
2. Actions of the Reserve bank of India
3. Inflation and short-term interest rates
Select the correct answer using the code given below.
Show answer
Answer: D. 1, 2 and 3
Verdict
Correct statements: 1, 2 and 3 → Option (d).
Analysis
Bond yield is the return an investor gets on a bond or particular government security. It depends on the price of the bond which is impacted by its demand.
Statement by statement
Statement 1 — CORRECT: Actions of the US Federal Reserve impact investments flowing into India. Foreign investment in government securities can be affected, changing demand and thereby influencing yields.
Statement 2 — CORRECT: RBI's actions determine liquidity and the cost of funds in the economy through its inflation management tools. Cost of funds directly impacts demand for government securities and therefore their yield.
Statement 3 — CORRECT: Inflation and short-term rates determine purchasing power in the economy, which affects demand and price of government securities and hence the yield.