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    Question

    One of the primary reasons banks do not invest in

    non-investment grade bonds (BBB or lower rated securities) is:
    A Lack of government backing for such securities Correct Answer Incorrect Answer
    B The presence of high tax rates on low-rated bonds Correct Answer Incorrect Answer
    C The significant credit risk associated with default possibilities Correct Answer Incorrect Answer
    D Regulatory restrictions imposed by SEBI and RBI Correct Answer Incorrect Answer
    E Low trading volumes in such bonds Correct Answer Incorrect Answer

    Solution

    Non-investment grade bonds (junk bonds) carry high default risk. To protect their capital and meet regulatory norms, banks avoid these risky investments.

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