NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
Ms. Nair, a conservative investor, wants a debt instrument that has the lowest credit risk among Indian rupee options. Which of the following best fits her need?
Central government securities best fit her need. They are backed by the sovereign and are regarded as having no default risk in rupee terms, whereas corporate bonds, commercial paper and subordinated bank bonds all carry issuer credit risk of varying degree.
- ACentral government securitiesCorrect
- BUnsecured corporate bonds rated AA
- CCommercial paper issued by a private company
- DSubordinated bank bonds
Explanation
Central government securities carry sovereign backing and are treated as free of default risk in rupee terms. The other options all carry issuer credit risk, which is higher for unsecured or subordinated paper.
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