New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    Consider the following statements regarding Bonds and

    Debentures: 1. Bonds are debt financial instruments issued by large corporations, financial institutions and government agencies that are not backed up by any collaterals or physical assets. 2. Debentures are debt financial instruments issued by private companies, with the backing up of collaterals or physical assets. 3. Bonds are long term investments and their tenure is generally higher than debentures. Which of the statements given above is /are correct?
    A 2 only Correct Answer Incorrect Answer
    B 3 only Correct Answer Incorrect Answer
    C 1 and 3 only Correct Answer Incorrect Answer
    D 1, 2 and 3 Correct Answer Incorrect Answer

    Solution

    ● Statements 1 and 2 are incorrect: Bonds are debt financial instruments issued by large corporations, financial institutions and government agencies that are backed up by collaterals or physical assets. Debentures are debt financial instruments issued by private companies, but any collaterals or physical assets do not back them up. Bonds are debt financial instruments that both public and private sector companies use to raise funds for their operations. The holder of these bonds is the lender, while the issuer of these bonds is the borrower. This interest rate is generally lower than debentures because the physical assets of a company secure bonds whereas the debentures are unsecured instruments. ● Statement 3 is correct: Bonds are long term investments and their tenure is generally higher than debentures. Debentures are generally short to medium term investments and their tenure is usually lower than bonds.

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