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With reference to the State Development Loan, consider the following statements:
- These are dated securities issued by states to meet their budgetary needs.
- These securities carry less interest rate as compared to the other Central Government securities.
Which of the statements given above is/are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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With reference to theState Development Loan, consider the following st...
**Statement 1: These are dated securities issued by states to meet their budgetary needs.**
Yes, this statement is correct. State Development Loans (SDLs) are securities issued by state governments in India to meet their budgetary requirements. SDLs are a form of market borrowing by states and are similar to the Central Government securities (G-Secs) issued by the central government.
State governments often need funds to finance their development projects, infrastructure investments, or to meet their day-to-day expenditure. To raise funds, they issue SDLs in the market. These securities have a specific maturity period and carry a fixed interest rate. They are typically issued in the form of bonds or debentures.
**Statement 2: These securities carry less interest rate as compared to the other Central Government securities.**
No, this statement is incorrect. State Development Loans generally carry a higher interest rate compared to Central Government securities. This is because SDLs are considered to be riskier investments as the creditworthiness of state governments may vary. The interest rate on SDLs is determined by market forces and factors such as the fiscal health of the state, its ability to repay the loan, and the demand and supply dynamics in the market.
On the other hand, Central Government securities are considered to be safer investments as they are backed by the creditworthiness of the central government. Therefore, they carry lower interest rates compared to SDLs. The interest rate on Central Government securities is benchmarked to the yield on government bonds and is influenced by factors such as inflation, fiscal deficit, and monetary policy decisions.
In conclusion, only statement 1 is correct. SDLs are dated securities issued by states to meet their budgetary needs, but they generally carry higher interest rates compared to Central Government securities.
Yes, this statement is correct. State Development Loans (SDLs) are securities issued by state governments in India to meet their budgetary requirements. SDLs are a form of market borrowing by states and are similar to the Central Government securities (G-Secs) issued by the central government.
State governments often need funds to finance their development projects, infrastructure investments, or to meet their day-to-day expenditure. To raise funds, they issue SDLs in the market. These securities have a specific maturity period and carry a fixed interest rate. They are typically issued in the form of bonds or debentures.
**Statement 2: These securities carry less interest rate as compared to the other Central Government securities.**
No, this statement is incorrect. State Development Loans generally carry a higher interest rate compared to Central Government securities. This is because SDLs are considered to be riskier investments as the creditworthiness of state governments may vary. The interest rate on SDLs is determined by market forces and factors such as the fiscal health of the state, its ability to repay the loan, and the demand and supply dynamics in the market.
On the other hand, Central Government securities are considered to be safer investments as they are backed by the creditworthiness of the central government. Therefore, they carry lower interest rates compared to SDLs. The interest rate on Central Government securities is benchmarked to the yield on government bonds and is influenced by factors such as inflation, fiscal deficit, and monetary policy decisions.
In conclusion, only statement 1 is correct. SDLs are dated securities issued by states to meet their budgetary needs, but they generally carry higher interest rates compared to Central Government securities.
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With reference to theState Development Loan, consider the following st...
Recently, four states raised Rs 5,800 crore through state development loans (SDL) auction — about one-fourth of the amount 15 state governments intended to raise in the upcoming days.
- These are dated securities issued by states for meeting their market borrowings requirements.
- Purpose: To meet the budgetary needs of state governments.
- The higher the fiscal strength of a state, the lower will be the interest rate (yield) it has to pay for the SDL borrowings.
- These are securities and they are auctioned by the RBI through the e-Kuber which is a dedicated electronic auction system for government securities and other instruments.
- Reserve Bank of India holds SDL auctions once a fortnight.
- The rate of interest or yield of SDL securities is determined through auction.
- The interest rate will be slightly higher than that of Central Government securities (G-secs) of matching tenure.
- The investors in SDL are basically commercial banks, mutual funds, and insurance companies that are attracted by the slightly higher interest
Hence only statement 1 is correct.
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With reference to theState Development Loan, consider the following statements: These are dated securities issued by states to meet their budgetary needs. These securities carry less interest rate as compared to the other Central Government securities.Which of the statements given above is/are correct?a)1 Onlyb)2 Onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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