Prelims Perspective: What needs to be learned

  • What is CAT Bond and Bonds in general? 
  • Capital Market

What needs to be known?

  • Catastrophe Bonds (CAT Bonds)
    • What is it? They are insurance-linked securities that transfer the financial risk of natural disasters from insurers to private investors through global financial markets.
    • Features: Offer high yield and primarily purchased by institutional investors like pension funds and hedge funds.
  • Bond
    • What is it? A bond is a debt instrument where an investor lends money to an issuer (government/company) for a fixed period at a fixed or variable interest rate.
Capital Market

  • The capital market is a financial market where long-term funds (more than one year) are raised and traded through instruments like shares, bonds, debentures, and derivatives.

SAMPLE QUESTION

  1. Which of the following best describes CAT bonds?

(a)  Bonds that provide high returns with government guarantees

(b)  Bonds issued by companies to raise capital for mergers and acquisitions

(c)   High-yield debt instruments that transfer insurance risk from insurers to investors

(d)  Bonds used for funding animal welfare and protection programs.

ANSWER: C

Source: The Hindu

 

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