Reading Comprehension – Test 134

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> Finance minister Nirmala Sitharaman's Budget speech contains several welcome policy measures to induce an active and thriving corporate bond market. A functional bond market is vital for transparent arm's-length finance, to better allocate resources for long-gestation infrastructure projects. Now, most corporate bonds continue to be privately placed and held to maturity here. It is this lack of depth in the secondary bond market that precludes a functional market for corporate bonds. In mature economies, central banks accept corporate bonds as collateral for their liquidity management operations, so as to purposefully develop the bond market. And Sitharaman has stated that the Centre would work with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) to allow AA-rated bonds as collateral for central bank repurchase obligations, or repo trading, under its liquidity adjustment facility (LAF). For starters, RBI may want to accept corporate bonds for its overnight LAF operations, as risks of a rating downgrade and change in market price would be minimal. We do need long-term repos in corporate bonds. <br><br> At the same time, there's the need to have a user-friendly electronic dealing platform, complete with a central counterparty for corporate bonds, and a repo order matching system, akin to that for government securities, for a liquid bond market. The point is to have clear-cut regulatory guidelines so that banks and primary dealers (in G-secs) act as marketmakers in the bond market - subject, of course, to a sound risk-management framework. Further, to augment bond market liquidity, corporates need to be encouraged to reissue exiting bonds under the same International Securities Identification Number (ISIN), to duly shore up floating stock.

What prevents a functional market for corporate bonds?

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> Finance minister Nirmala Sitharaman's Budget speech contains several welcome policy measures to induce an active and thriving corporate bond market. A functional bond market is vital for transparent arm's-length finance, to better allocate resources for long-gestation infrastructure projects. Now, most corporate bonds continue to be privately placed and held to maturity here. It is this lack of depth in the secondary bond market that precludes a functional market for corporate bonds. In mature economies, central banks accept corporate bonds as collateral for their liquidity management operations, so as to purposefully develop the bond market. And Sitharaman has stated that the Centre would work with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) to allow AA-rated bonds as collateral for central bank repurchase obligations, or repo trading, under its liquidity adjustment facility (LAF). For starters, RBI may want to accept corporate bonds for its overnight LAF operations, as risks of a rating downgrade and change in market price would be minimal. We do need long-term repos in corporate bonds. <br><br> At the same time, there's the need to have a user-friendly electronic dealing platform, complete with a central counterparty for corporate bonds, and a repo order matching system, akin to that for government securities, for a liquid bond market. The point is to have clear-cut regulatory guidelines so that banks and primary dealers (in G-secs) act as marketmakers in the bond market - subject, of course, to a sound risk-management framework. Further, to augment bond market liquidity, corporates need to be encouraged to reissue exiting bonds under the same International Securities Identification Number (ISIN), to duly shore up floating stock.

What does advanced countries do to develop the bond market?

Read the following passage carefully and choose the most appropriate answer to the questions out of five alternatives. <br><br> Finance minister Nirmala Sitharaman's Budget speech contains several welcome policy measures to induce an active and thriving corporate bond market. A functional bond market is vital for transparent arm's-length finance, to better allocate resources for long-gestation infrastructure projects. Now, most corporate bonds continue to be privately placed and held to maturity here. It is this lack of depth in the secondary bond market that precludes a functional market for corporate bonds. In mature economies, central banks accept corporate bonds as collateral for their liquidity management operations, so as to purposefully develop the bond market. And Sitharaman has stated that the Centre would work with the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) to allow AA-rated bonds as collateral for central bank repurchase obligations, or repo trading, under its liquidity adjustment facility (LAF). For starters, RBI may want to accept corporate bonds for its overnight LAF operations, as risks of a rating downgrade and change in market price would be minimal. We do need long-term repos in corporate bonds. <br><br> At the same time, there's the need to have a user-friendly electronic dealing platform, complete with a central counterparty for corporate bonds, and a repo order matching system, akin to that for government securities, for a liquid bond market. The point is to have clear-cut regulatory guidelines so that banks and primary dealers (in G-secs) act as marketmakers in the bond market - subject, of course, to a sound risk-management framework. Further, to augment bond market liquidity, corporates need to be encouraged to reissue exiting bonds under the same International Securities Identification Number (ISIN), to duly shore up floating stock.

Why would RBI want to accept corporate bonds for its overnight LAF operations? <br> 1. Risk of a rating downgrade would be minimal. <br> 2. Because of long-term repos in corporate bonds. <br> 3. Risk of a change in market price would be minimal.