Question

Which of the below mentioned statements are correct?

i. Bond price and interest rate are negatively related

ii. In secondary market prices of government securities are decided by RBI

iii. Credit creation varies directly with Cash Reserve Ratio (CRR)

A Only i Correct Answer Incorrect Answer
B Only i & ii Correct Answer Incorrect Answer
C Only i & iii Correct Answer Incorrect Answer
D Only ii & iii Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

When interest rate increases in the market, prices of the bonds decline. In secondary market the price of any security is determined by the market (demand and supply). RBI has no control on it. When CRR increases credit creation declines.

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