Question

How many of the following statements is/are incorrect?

A. The yield of a bond is inversely related to its price.
B. Liquidity Adjustment Facility is an important monetary policy tool of RBI.
C. Treasury bills or T-bills are capital market instruments which are long-term debt instruments issued by the Government of India.

Answer Options:

1. Only one statement
2. Only two statements
3. Only three statements
4. None of the statements

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Answer:
2. Only two statements

Explanation:

• Statement A: Correct. Bond prices and yields have an inverse relationship. When bond prices go up, the yield (interest rate) goes down, and vice versa.

• Statement B: Correct. Liquidity Adjustment Facility (LAF) is a monetary policy tool used by the Reserve Bank of India (RBI) to manage liquidity and ensure stability in the financial market.

• Statement C: Incorrect. Treasury Bills (T-bills) are money market instruments, not capital market instruments, and they are short-term debt instruments issued by the Government of India for durations like 91 days, 182 days, and 364 days.

Sources:

1. RBI - Monetary Policy Tools
2. T-Bills Overview by SEBI