Who bears the currency risk in a masala bond?
Debt is classified by borrower (government or non-government) and by tenor. Up to one year is the money market; longer is the capital market. Money market instruments are issued at a discount and redeemed at par: - Repo / reverse repo: borrowing against eligible collateral (G-secs, some corporate bonds). A repo for the borrower is a reverse repo for the lender. Tri-party repo is cleared through a central counterparty (CCIL or the exchange's clearing corporation), which guarantees settlement and collects margins. Exchanges offer basket repo contracts of 1 to 7 days on corporate bonds. - Certificates of deposit: tradable short-term deposits issued by banks. - Treasury bills: issued by the central government for 91, 182 and 364 days, through RBI auctions. - Commercial paper: unsecured, rated short-term borrowing by companies, up to 364 days; 90 days is the most common.
Exam trap: T-bills are issued by the central government only; companies use commercial paper; banks use certificates of deposit.