Q1. With reference to Government of India’s “Digital Advertisement Policy, 2023”, consider the following statements:
- The policy enables and empowers the Central Bureau of Communication which is the advertising wing of the Government of India to undertake campaigns in the Digital Media Space.
- The policy encompasses campaigns to be run on mobile applications, apart from websites.
- It mandates that the Digital Media platforms need to be at least a year old to be eligible to apply under the scheme.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Ans: (c)
Explanation
- S1: The Ministry of Information and Broadcasting has approved a path breaking “Digital Advertisement Policy, 2023 to enable and empower the Central Bureau of Communication which is the advertising wing of the Government of India to undertake campaigns in the Digital Media Space. This policy marks a pivotal moment in CBC’s mission to disseminate information and create awareness regarding various schemes, programs, and policies of the Government of India in response to the evolving media landscape and the increased digitalization of media consumption.
- S2and S3: The policy will also encompass campaigns to be run on mobile applications, apart from websites. It mandates that the websites, mobile apps, OTT platforms and digital audio platforms need to be at least a year old to be eligible to apply under the scheme.
Q2. What are Surety Bonds?
(a) Insurance policies that protect individuals or businesses against financial losses due to natural disasters.
(b) Financial instruments used to invest in the stock market.
(c) Legal agreements where a third party guarantees the performance or payment of a contract by another party.
(d) Securities issued by the government to raise funds for public infrastructure projects.
Ans: (c)
Explanation:
- Surety bonds are legal agreements in which a third party, known as the surety, guarantees the performance or payment of a contract by another party, known as the principal. If the principal fails to fulfill the terms of the contract, the surety steps in to cover the losses. Surety bonds are commonly used in construction, real estate, and other industries to ensure that contractual obligations are met.
Q3. Consider the following statements regarding Government security (G-sec) yields:
- Government securities or government bonds, are instruments that governments use to borrow money.
- G-sec yields indicate the broader trend of interest rates in the economy.
- If G-sec yields start going up, it means lending to the government is becoming riskier.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Ans: (c)
Explanation
- G-secs, or government securities or government bonds, are instruments that governments use to borrow money. G-secs carry the lowest risk of all investments.
How are G-sec yields calculated?
- G-sec yields change over time; often several times during a single day. This happens because of the manner in which G-secs are structured.
- Every G-sec has a face value, a coupon payment and price. The price of the bond may or may not be equal to the face value of the bond.
- Here’s an example: Suppose the government floats a 10-year G-sec with a face value of Rs 100 and a coupon payment of Rs 5.
- If one were to buy this single G-sec from the government, it would mean that one will give Rs 100 to the government today and the government will promises to 1) return the sum of Rs 100 at the end of tenure (10 years), and 2) pay Rs 5 each year until the end of this tenure.
- At this point, the face value of this G-sec is equal to its price, and its yield (or the effective interest rate) is 5%.
How do G-sec yields go up and down?
- Imagine a scenario in which the government floats just one G-sec, and two people want to buy it. Competitive bidding will ensue, and the price of the bond may rise from Rs 100 (its face value) to Rs 105. Now imagine another lender in the picture, which pushes the price further up to Rs 110.
- But here is the crucial thing: the coupon payment on the G-sec is still Rs 5.
- So, if you bought the bond at Rs 100, then the yield is 5% but if the price of the bond goes up to Rs 105 then the yield will fall; it will become 4.76% because the second person will be getting Rs 5 over an investment of Rs 105.
- Further, if bidding leads to the price going to Rs 110, then the third person (who finally bought the bond at Rs 110) will find that the yield has fallen further to 4.54%; because the third person would have invested Rs 110 for the same return of Rs 5.
What do G-sec yields show?
- G-secs are the safest investments in any economy, and the G-sec yield is the lowest risk-free interest rate in any economy. As such, they are a good way to figure out the broader trend of interest rates in the economy.
- If G-sec yields (say for a 10-year bond) are going up, it would imply that lenders are demanding even more from private sector firms or individuals; that’s because anyone else is riskier when compared to the government.
- It is also known that when it comes to lending, interest rates rise with the rise in risk profile. As such, if G-sec yields start going up, it means lending to the government is becoming riskier.
- If you read that the G-sec yields are going up, it suggests that the bond prices are falling. But the prices are falling because fewer people want to lend to the government.
Q4. Consider the following statements:
- The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
- Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
- Treasury bills are issued at a discount from the par value.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Ans: (b)
Explanation
- Statement 1 is wrong.
- A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
- S1: G-Secs are issued through auctions conducted by RBI.
- Floatation of State Government Loans (State Development Loans): As per the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State. I
- Accordingly, the RBI has entered into agreements with 29 State Governments and one Union Territory (UT of Puducherry) for management of their public debt.
- S2: In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Treasury Bills (T-bills) Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 3.64 day.
- S3: Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity.
- For example, a 91 day Treasury bill of 100/- (face value) may be issued at say 98.20, that is, at a discount of say, 1.80 and would be redeemed at the face value of 100/-.
Q5. What is the primary difference between White Holes and Black Holes?
(a) Black Holes and White Holes are terms for the same astronomical phenomenon.
(b) Black Holes are regions with extremely high gravitational pull, while White Holes repel matter and energy.
(c) White Holes are older, collapsed Black Holes.
(d) Black Holes result from the explosion of massive stars, while White Holes form from the merger of smaller stars.
Ans: (b)
Explanation:
- In general relativity, a white hole is a hypothetical region of spacetime and singularity that cannot be entered from the outside, although energy-matter, light and information can escape from it. In this sense, it is the reverse of a black hole, from which energy-matter, light and information cannot escape.
- The primary difference between Black Holes and White Holes lies in their gravitational behavior. Black Holes are regions where gravity is so strong that nothing, not even light, can escape their gravitational pull. In contrast, White Holes, a hypothetical concept, would repel matter and energy, essentially acting as the opposite of a Black Hole. However, White Holes remain speculative and have not been observed.
