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Which of the following is a bond through which Indian entities can raise money from foreign markets in rupees, and not in foreign currency?
1. Corporate Bonds
2. Masala Bonds
3. Municipal Bonds
4. Zero-coupon Bonds
5. None of the above/More than one of the above

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Correct Answer - Option 2 : Masala Bonds

The correct answer is ​Masala Bonds.

  • Indian companies (both private and government) have got permission from the Government of India and the Reserve Bank for various instruments to raise capital from abroad, one of them is the Masala Bond.

  • "Masala Bonds are rupee-denominated bonds. It is a debt instrument issued by an Indian entity in foreign markets to raise money, in Indian currency, instead of dollars or local denomination".
  •  Kerala became the first Indian state to issue Masala Bonds worth Rs. 2,150 crore on the London Stock Exchange in the year 2019.
  • Companies raise the capital they need by selling masala bonds abroad.
  • It is a corporate bond that is issued in the international market.
  • Their minimum maturity period is 3 years. Till April 2016, this period was 5 years.
  • It cannot be redeemed before 3 years.
  • Before the issuance of Masala Bonds, Indian companies used to issue bonds in dollars for foreign investment, if there were any fluctuations in the value, Indian companies would have to bear the loss, but this is not the case with Masala Bonds.

  • Corporate Bond: - A corporate bond is a type of debt security that is issued by a firm and sold to investors.
    • The company gets the capital it needs and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.
    • When the bond expires, or "reaches maturity," the payments cease and the original investment is returned.
  • Municipal Bond:Municipal bonds are debt obligations issued by government entities.
    • When you buy a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period.
    •  At the end of that period, the bond reaches its maturity date, and the full amount of your original investment is returned to you.
  • Zero-Coupon Bond: - A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value. 

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