Q. Consider the following statements about the MSS (Market Stabilization scheme) bonds:

1. These are long term bonds generally with tenure of six years or more
2. These bonds are tradable in the secondary market
3. Investment in MSS bonds earn a return for banks in interest

Which of the above statements is/are correct?
Answer: Only 2 & 3
Notes: These are long term bonds generally with tenure of six years or more This is incorrect because MSS bonds are mostly shorter tenure bonds, of less than six months maturity. These are special bonds floated on behalf of the government by the RBI to absorb the excess liquidity in the system when regular government bonds prove inadequate. These bonds are tradable in the secondary market This is correct statement. MSS bonds can be raised through an auction and are tradable in the secondary market. Investment in MSS bonds earn a return in the form of interest This is correct. Though Banks don't earn any returns from the money parked in the form of CRR, investment in MSS bonds earn a return in the form of interests to banks.

This question is part of UPSC Daily 20 MCQ Series Course on GKToday Android app.