UPSC CSE Prelims
Question 84
Consider the following statements :
Statement-I : If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.
Statement-II : The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
Which one of the following is correct in respect of the above statements ?
View correct answer and explanation
Correct answer: A
Correct Option: A (Both Statement-I and Statement-II are correct and Statement-II explains Statement-I)
Explanation: Treasury debt is backed by the US government’s promise/credit rather than earmarked hard assets; default would mean contracted payments were missed, though investors’ legal claims need not vanish.
Statement / Pair / Item-wise Analysis:
I. Correct/True - The supplied key uses “not be able to exercise claims to receive payment” to mean bondholders cannot obtain payment on schedule during default; it does not extinguish contractual claims.
II. Correct/True - Treasuries are full-faith-and-credit obligations, not collateralised by identified physical assets.
Option-wise Analysis:
A. Correct-both statements hold, and II explains I.
B. Incorrect-Statement II directly explains the situation in Statement I.
C. Incorrect-Statement II is true, not false: Treasuries are full-faith-and-credit obligations, not collateralised by identified physical assets.
D. Incorrect-Statement I is true, not false: The supplied key uses “not be able to exercise claims to receive payment” to mean bondholders cannot obtain payment on schedule during default; it does not extinguish contractual claims.
Review note: Question’s “cannot exercise their claims” is imprecise: default delays/nonpayment but does not cancel creditors’ legal rights.