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Question

The instrument where coupon and principal payments of bonds are converted into separate securities and are separately traded is called:

A Participatory Notes Correct Answer Incorrect Answer
B STRIPS Correct Answer Incorrect Answer
C Cash Management Bills Correct Answer Incorrect Answer
D Commercial Papers Correct Answer Incorrect Answer
E TRIPS Correct Answer Incorrect Answer

Solution

STRIPS – Separate Trading of Registered Interest and Principal of Securities: STRIPS are the securities created by way of separating the cash flows associated with a regular G-Sec each semi-annual coupon payment and the final principal payment to be received from the issuer, into separate securities. They are like the Zero-Coupon Bonds (ZCBs). They are created out of existing securities only and unlike other securities, are not issued through auctions.

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