UPSC General Studies Solved Paper - General Studies-2016

  • question_answer
    With reference of 'IFC 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 codes given below

    A)  Only 1                         

    B)  Only 2

    C)  Both 1 and 2    

    D)                     Neither1nor 2

    Correct Answer: C

    Solution :

    Exp. [c] Masala bonds are rupee denominated overseas bonds. Masala bonds will help to internationalise the Indian rupee and also deepen the Indian financial system (Public and Private Sector). By issuing bonds in rupees, an Indian company is shielded against the risk of currency fluctuation, typically associated with borrowing in foreign currency. Besides helping diversify funding sources, the cost of borrowing could also turn out to be lower than domestic markets. In 2013, the first masala bonds were issued by the International Finance Corporation (IFC), an arm of the World Bank. IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine. The Reserve Bank of India has issued guidelines allowing Indian companies, non-banking finance companies (HDFC, Indiabulls Housing Finance are examples of such companies) and infrastructure investment trusts and real investment trusts (investment vehicles that pool money from various investors and invest in infrastructure and real estate sectors) to issue rupee-denominated bond overseas. Masala bond will help the Indian corporates to reduce its interest cost burden on the debt amount on its balance sheet. The more of foreign funds can be used for infrastructural development in the country. Overall, the development of a Masala bond market would be positive for Indian firms, opening up potentially significant new sources of funding over External Commercial Borrowings (ECBs).

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