economics hard True/False

A 'Masala Bond' is a rupee-denominated bond issued by overseas entities in the international capital markets to raise funds from foreign investors, thereby transferring the currency risk to the investor.

  1. True
  2. False

Answer: True

Unlike standard external commercial borrowings (ECBs) where an Indian company borrows in USD and bears the risk of Rupee depreciation, Masala Bonds are issued and redeemed strictly in Indian Rupees. If the Rupee depreciates against the dollar, the foreign investor absorbs the loss, making it a highly effective hedging tool for Indian corporate borrowers.

Topic Banking - Financial Markets
Exam Relevance UPSC Prelims, Banking, SSC
More economics Questions Back to all questions