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Consider the following :
1. Market borrowing
2. Treasury bills
3. Special securities issued to RBI
Which of these is/are component(s) of internal debt ?
1. Market borrowing
2. Treasury bills
3. Special securities issued to RBI
Which of these is/are component(s) of internal debt ?
- a)1
- b)1,2
- c)2
- d)1,2,3
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Consider the following : 1. Market borrowing 2. Treasury bills 3. Spe...
Internal debt refers to the debt that a government owes to its own citizens or institutions within the country. It is different from external debt, which is the debt owed to foreign entities. In the context of India, internal debt consists of various components, including market borrowing, treasury bills, and special securities issued to the Reserve Bank of India (RBI).
Explanation:
1. Market Borrowing:
Market borrowing refers to the process through which the government raises funds by selling government securities in the open market. These securities can be in the form of bonds or long-term loans. Market borrowing is an important component of internal debt as it allows the government to finance its expenditure requirements.
2. Treasury Bills:
Treasury bills are short-term debt instruments issued by the government to meet its short-term financing needs. They are normally issued for a period of 91 days, 182 days, or 364 days. Treasury bills are typically sold at a discount to their face value and are redeemed at face value upon maturity. They are highly liquid and considered to be risk-free investments. Treasury bills are also a component of internal debt as they represent the government's borrowing from domestic sources.
3. Special Securities Issued to RBI:
The Reserve Bank of India (RBI) acts as the banker to the government and undertakes various activities to manage the government's finances. One of these activities involves the issuance of special securities to the RBI. These securities are issued to the RBI as a means of sterilizing the liquidity in the system. When the government receives funds from the RBI through various means, such as tax revenues or disinvestment proceeds, it issues these special securities to the RBI to neutralize the liquidity impact. These securities represent a component of the internal debt as they are a liability of the government.
In conclusion, all three components mentioned, namely market borrowing, treasury bills, and special securities issued to the RBI, are part of the internal debt of the government. These instruments allow the government to raise funds from domestic sources to meet its expenditure requirements and manage liquidity in the financial system.
Explanation:
1. Market Borrowing:
Market borrowing refers to the process through which the government raises funds by selling government securities in the open market. These securities can be in the form of bonds or long-term loans. Market borrowing is an important component of internal debt as it allows the government to finance its expenditure requirements.
2. Treasury Bills:
Treasury bills are short-term debt instruments issued by the government to meet its short-term financing needs. They are normally issued for a period of 91 days, 182 days, or 364 days. Treasury bills are typically sold at a discount to their face value and are redeemed at face value upon maturity. They are highly liquid and considered to be risk-free investments. Treasury bills are also a component of internal debt as they represent the government's borrowing from domestic sources.
3. Special Securities Issued to RBI:
The Reserve Bank of India (RBI) acts as the banker to the government and undertakes various activities to manage the government's finances. One of these activities involves the issuance of special securities to the RBI. These securities are issued to the RBI as a means of sterilizing the liquidity in the system. When the government receives funds from the RBI through various means, such as tax revenues or disinvestment proceeds, it issues these special securities to the RBI to neutralize the liquidity impact. These securities represent a component of the internal debt as they are a liability of the government.
In conclusion, all three components mentioned, namely market borrowing, treasury bills, and special securities issued to the RBI, are part of the internal debt of the government. These instruments allow the government to raise funds from domestic sources to meet its expenditure requirements and manage liquidity in the financial system.
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Consider the following : 1. Market borrowing 2. Treasury bills 3. Special securities issued to RBI Which of these is/are component(s) of internal debt ?a) 1 b) 1,2 c) 2 d) 1,2,3 Correct answer is option 'D'. Can you explain this answer?
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