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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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