{"id":1695,"date":"2024-03-28T19:05:47","date_gmt":"2024-03-28T13:35:47","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1695"},"modified":"2024-04-03T07:17:43","modified_gmt":"2024-04-03T01:47:43","slug":"q-indian-government-bond-yields-are-influenced-by-which-of-the-following","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-indian-government-bond-yields-are-influenced-by-which-of-the-following","title":{"rendered":"Q.\u00a0Indian Government Bond yields are influenced by which of the following?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">1. Actions of the United States Federal Reserve<br>2. Actions of the Reserve Bank of India<br>3. Inflation and short-term interest rates.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Select the correct answer using the code given below<\/p>\n\n\n\n<ul class=\"mcq wp-block-list\">\n<li>1 and 2 only<\/li>\n\n\n\n<li>2 only<\/li>\n\n\n\n<li>3 only<\/li>\n\n\n\n<li>1, 2 and 3<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: d) 1, 2 and 3<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"bond\"><strong>Bond<\/strong>:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A bond is a&nbsp;<strong>loan made by an investor to a borrower<\/strong>&nbsp;for a set period of time&nbsp;<strong>in return for regular interest payments.<\/strong><\/li>\n\n\n\n<li><strong>The time<\/strong>&nbsp;from&nbsp;<strong>when the bond is issued<\/strong>&nbsp;<strong>to when the borrower has agreed to pay<\/strong>&nbsp;the loan back&nbsp;<strong>is called its \u2018term to maturity\u2019<\/strong>.&nbsp;<\/li>\n\n\n\n<li>The&nbsp;<strong>bond issuer<\/strong>&nbsp;<strong>uses the money raised from bonds to undertake various activities<\/strong>&nbsp;such as funding expansion projects, refinancing existing debt, undertaking welfare activities, etc.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"bond-yield\">Bond Yield:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Bond Yield is the&nbsp;<strong>return an investor expects to receive each year over its term to maturity<\/strong>.<\/li>\n\n\n\n<li>It&nbsp;<strong>partially depends on coupon payments<\/strong>, which refer to the periodic interest income obtained as a reward for holding bonds.<\/li>\n\n\n\n<li>The bondholders receive the bond\u2019s face value at the end of the bond\u2019s life. However,&nbsp;<strong>one may buy bonds at par value,<\/strong>&nbsp;<strong>discount<\/strong>&nbsp;(at a price lower than par value)&nbsp;<strong>or premium<\/strong>&nbsp;(at a price higher than par value)&nbsp;<strong>as they trade in the secondary market.<\/strong>&nbsp;Therefore,&nbsp;<strong>the prevailing market price of bonds also affects the bond yield.<\/strong><\/li>\n\n\n\n<li>It is\u00a0<strong>calculated by using<\/strong>\u00a0the following formula:\n<ul class=\"wp-block-list\">\n<li><strong>Bond Yield= Coupon Amount \/ Price<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Bond Yield vs. Price:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Price and yield are&nbsp;inversely related.<\/strong><\/li>\n\n\n\n<li>As the\u00a0<strong>price of a bond goes up, its yield goes down<\/strong>\u00a0and as yield goes up, the price of the bond goes down.\n<ul class=\"wp-block-list\">\n<li>A\u00a0<strong>fall in interest rates makes bond prices rise and bond yields fall&nbsp;<\/strong>and vice versa. In short, a rise in bond yields means interest rates in the monetary system have fallen.\n<ul class=\"wp-block-list\">\n<li>In other words, the returns for investors (those who invested in bonds and government securities) have declined.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Example<\/strong>:\n<ul class=\"wp-block-list\">\n<li><strong>Suppose interest rates fall. New bonds<\/strong>&nbsp;that are issued will now&nbsp;<strong>offer lower interest payments.<\/strong>&nbsp;This&nbsp;<strong>makes existing bonds that were issued<\/strong>&nbsp;before the fall in interest rates&nbsp;<strong>more valuable to investors<\/strong>, because they offer higher interest payments compared to new bonds.&nbsp;<strong>As a result, the price of existing bonds will increase.<\/strong><\/li>\n\n\n\n<li>However, if a bond\u2019s price increases it is now more expensive for a potential new investor to buy. The bond\u2019s yield will then fall because the return an investor expects from purchasing this bond is now lower.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The\u00a0<strong>major factors<\/strong>\u00a0affecting the bond yields are \u2013\n<ul class=\"wp-block-list\">\n<li>the&nbsp;<strong>monetary policy of the RBI<\/strong>, especially the course of interest rates<\/li>\n\n\n\n<li>the&nbsp;<strong>fiscal position of the government<\/strong><\/li>\n\n\n\n<li><strong>government\u2019s borrowing programme<\/strong><\/li>\n\n\n\n<li><strong>global markets, economy, and inflation<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lotusarise.com\/wp-content\/uploads\/2024\/02\/bond-yield-1024x459.png\" alt=\"Bond Yields\" class=\"wp-image-48792\" title=\"Upsc prelims research: indian economy 2021 3\"\/><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>1. Actions of the United States Federal Reserve2. Actions of the Reserve Bank of India3. Inflation and short-term interest rates. Select the correct answer using the code given below Answer: d) 1, 2 and 3 Bond: Bond Yield:<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[52],"class_list":["post-1695","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-52"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":52,"label":"2021"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1695","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1695"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1695\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1695"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1695"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1695"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1695"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}