1. 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?

US Treasury Bonds
Debt securities issued by the US government. When you hold one, the government promises to pay interest and repay the principal at maturity.

Default on debt
Failure (or refusal / delay) to make promised payments (interest and/or principal) on time and in full, as per the bond contract.

“Exercise their claims”
Bondholders have a legal claim (a right to be paid under the bond’s terms). “Exercising” it means demanding payment and, in theory, pursuing remedies (though suing a sovereign government has practical limits).

Backed by hard assets vs. backed by faith/credit

• Hard assets backing: a specific pool of assets pledged as collateral (like a mortgage backed by property).

• Full faith and credit: repayment depends on the government’s taxing power, borrowing capacity, and willingness to pay—not on earmarked collateral.

Statement I: If the USA were to default, holders of US Treasury Bonds will not be able to exercise their claims to receive payment.
❌ Incorrect as stated.
A default means holders may not receive payment as promised (on time/in full), but it doesn’t mean they “cannot exercise their claims” at all. They still do have a claim under the bond contract; the problem in default is that the issuer fails to honor it properly (and remedies against a sovereign may be limited, but the claim doesn’t vanish).

Statement II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
✅ Correct in essence.
US Treasuries are generally not collateralized by specific hard assets; they rely on the government’s full faith and credit (its capacity and commitment to pay).