Which of the following Statements about the Government Securities is/are True?

I- They are less likely to be defaulted, as backed by the Sovereign Government.

II- They always carry high interest rate.

III- They are one of the most liquid instruments.

Solution

G-Sec is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.