ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Bonds are technically a form of IOU, whereby an individual loans an amount of money to a company or government and is given a contract promising to repay the money with interest by a certain date. Whilst this agreement is sometimes referred to as an “IOU”, it is in fact legally binding.

Detailed explanation-2: -An IOU is a written acknowledgement of debt that one party owes another. In business transactions, an IOU may be followed by a more formal written contract. The informality of the IOU can make it difficult to enforce, and usually impossible to sell or trade.

Detailed explanation-3: -A government bond is a debt instrument issued by the central and state government of the country to finance their needs and also to regulate the money supply. When the government requires funds for infrastructure development and for financing government spending such bonds are often the answer.

Detailed explanation-4: -We borrow the money by selling securities like Treasury bills, notes, bonds, and savings bonds to the public. The Treasury securities issued to the public and to the Government Trust Funds (Intragovernmental Holdings) then become part of the total debt.