NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
Which of the following best describes the risk-free asset typically used as the benchmark for the risk-free rate in the Indian context?
Government of India treasury bills are used as the proxy for the risk-free rate because the sovereign is assumed not to default. Corporate bonds, bank deposits and equities all carry credit or market risk, so they are not considered risk-free benchmarks.
- AGovernment of India treasury billsCorrect
- BEquity shares of large listed companies
- CAAA-rated corporate bonds
- DBank fixed deposits of private banks
Explanation
Risk-free rate is proxied by sovereign instruments such as Government of India treasury bills or government securities, which carry no default risk. Corporate bonds and private bank deposits carry credit risk, and equity carries market risk.
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