With reference to Masala Bonds, consider the following statements:
1. Capital raised through Masala Bonds originates from overseas investors.
2. These bonds are denominated in Indian Rupees, but the proceeds are received in foreign currency.
3. The risk of currency fluctuation in these bonds is borne by the investor, not the issuer.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1,2 and 3

Question

With reference to Masala Bonds, consider the following statements:
1. Capital raised through Masala Bonds originates from overseas investors.
2. These bonds are denominated in Indian Rupees, but the proceeds are received in foreign currency.
3. The risk of currency fluctuation in these bonds is borne by the investor, not the issuer.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1,2 and 3

ONLiNE UPSC · Accepted Answer

Statement 1 is correct: Masala Bonds are a form of External Commercial Borrowing (ECB), where Indian entities raise funds from overseas investors, thereby attracting foreign capital.

Statement 2 is correct: Although the bonds are denominated in Indian Rupees, the actual funds raised are in foreign currency, as the bonds are subscribed to by foreign investors.

Statement 3 is correct: Since the repayment is in Indian Rupees, any depreciation of the rupee affects the investor's return. This means the foreign exchange risk lies with the investor, not the Indian issuer, unlike dollar-denominated bonds.

International Finance

Masala Bonds

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M Question 1	⏱ 0
With reference to Masala Bonds, consider the following statements: 1. Capital raised through Masala Bonds originates from overseas investors. 2. These bonds are denominated in Indian Rupees, but the proceeds are received in foreign currency. 3. The risk of currency fluctuation in these bonds is borne by the investor, not the issuer. Which of the statements given above is/are correct? (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1,2 and 3

International Finance

Masala Bonds

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