Prelims · Economy & social development · 31 questions

Capital markets, insurance & financial instruments

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UPSC syllabus: “Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.” See the full syllabus →

Prelims 2021 · Q6

Easy

Indian Government Bond Yields are influenced by which of the following?

1.Actions of the United States Federal Reserve
2.Actions of the Reserve Bank of India
3.Inflation and short-term interest rates

Select the correct answer using the code given below.

Answer & explanation

Answer: (d) 1, 2 and 3

A bond's yield moves opposite to its price, and the RBI lists all three as forces that move the prices of Indian government securities (G-secs): interest rates and expected inflation at home, RBI policy actions, and developments in US Treasuries, which follow the Federal Reserve.

✓ 1. When the US Federal Reserve raises rates, US Treasury yields rise and foreign money can leave Indian bonds, pushing Indian yields up; the RBI notes that US Treasury developments affect G-sec prices.
✓ 2. RBI actions such as changing the repo rate or CRR, or buying and selling bonds in open market operations, change G-sec prices and therefore yields.
✓ 3. Investors demand a higher yield when expected inflation or short-term rates rise, so G-sec prices fall and yields go up.

Remember · Bond price and yield move in opposite directions. Indian G-sec yields respond to domestic inflation and interest rates, RBI policy, and global (especially US) yields.

Sources

RBI, Government Securities Market in India – A Primer (Q13: Why does the price of G-Sec change?) ↗ “the prices of G-Secs are influenced by the level and changes in interest rates in the economy and other macro-economic factors, such as, expected rate of inflation, liquidity in the market, etc. … developments in international bond markets, specifically the US Treasuries affect prices of G-Secs in India. … Policy actions by RBI (e.g., announcements regarding changes in policy interest rates like Repo Rate, Cash Reserve Ratio, Open Market Operations, etc.) also affect the prices of G-Secs.”

Question and answer: UPSC's official GS Paper I (2021, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2021 · Q13

Medium

With reference to India, consider the following statements:

1.Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in primary market.
2.The 'Negotiated Dealing System-Order Matching' is a government securities trading platform of the Reserve Bank of India.
3.The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (b) 1 and 2

Retail investors can bid for Treasury Bills and dated government bonds in RBI's primary auctions through the non-competitive route, using stock exchanges as aggregators and holding the securities in demat form. NDS-OM is RBI's electronic trading platform for government securities. CDSL was sponsored by the Bombay Stock Exchange and Bank of India; the RBI is not a promoter.

✓ 1. Specified stock exchanges act as aggregators in RBI's primary auctions, submitting consolidated non-competitive bids for their clients and transferring the allotted securities to them, so a demat account holder can buy in the primary market.
✓ 2. The RBI introduced the Negotiated Dealing System-Order Matching (NDS-OM), an anonymous screen-based order matching system for secondary-market trading in government securities, in August 2005.
✗ 3. SEBI's 1998 registration release says CDSL is sponsored by the Bombay Stock Exchange (BSE) and Bank of India. The RBI is not a promoter, and the depository is regulated by SEBI.

Remember · NDS-OM: RBI's screen-based G-sec trading platform (2005). Depositories: NSDL and CDSL (CDSL sponsored by BSE and Bank of India), both regulated by SEBI.