A Government Security (G-Sec)
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2 marksIndian EconomyMoney, banking and financial markets in IndiaMonetary aggregates and the money marketModerateabout 2 min
GATE 2021 Question 28: Money, banking and financial markets in India
Answer and worked solution
Answer: (A) and (B)
(A) is correct: the Central Government issues G-Secs, including both Treasury Bills (short-term) and dated Government Bonds (long-term).
(B) is correct: State Governments also issue tradeable G-Secs, called State Development Loans (SDLs) — these are a recognized category of the broader G-Sec market.
(C) is incorrect: G-Secs are NOT restricted to maturities of only more than one year — Treasury Bills (a Central Government G-Sec category) specifically have maturities of less than one year (91-day, 182-day, 364-day tenors), alongside longer-dated bonds.
(D) is incorrect: G-Secs are, in fact, specifically referred to as 'gilt-edged' instruments in standard financial terminology, precisely because they carry virtually no default risk (being backed by the government).
Therefore the correct statements are (A) and (B).
The trap: A;B;C
Students who correctly know the two issuer types (A, B) but aren't precise on the maturity classification might assume 'G-Secs' colloquially refers only to the longer-dated bonds (excluding T-bills from their mental category), leading them to mistakenly accept (C) as also correct.
Money, banking and financial markets in India has come up 106 times in 6 exams since 2010.
What this question tests
This question is on Monetary aggregates and the money market, part of Money, banking and financial markets in India in Indian Economy.
How money is measured in India and the short-term markets that carry it.
TestStop has 10 past-paper questions on this subtopic.
Question from the GATE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.