Question : Which of the following statements is correct regarding the government securities in the economy? I. It is a tradeable instrument issued by the Central or State Governments. II. They are called risk-free, gilt-edged instruments.
Option 1: Neither I nor II
Option 2: Only I
Option 3: Only II
Option 4: Both I and II
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Correct Answer: Both I and II
Solution : The correct option is Both I and II.
I. Government securities are debt instruments issued by the government to raise funds for various purposes. They are traded on the secondary market, allowing investors to buy and sell them before their maturity date.
II. While no investment is entirely risk-free, government securities are considered highly secure due to the low probability of the government defaulting on its debt. This low risk gives them the label "gilt-edged" instruments. However, risks, like interest rate fluctuations and changing government policies, can still affect their value.
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