Question
Consider the following statements about government
securities and derivatives: (I) Government Securities are risk-free gilt-edged instruments. (II) Derivatives are a type of Government Security. Which statement(s) is/are correct?Solution
Government Securities, often referred to as gilt-edged securities, are considered risk-free because they are backed by the government. They include treasury bills and bonds with varying maturities. Derivatives, on the other hand, are financial instruments derived from other assets; they are not a type of Government Security and can carry significant risk.
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