Explanation:

Market Stabilization Bonds:

Option (a) is correct: MSS bonds (Market Stabilization Scheme) are result of MOU between government and RBI, given to RBI when it does not have enough bonds to suck excessive liquidity from the market.Under the scheme bonds are issued by Reserve Bank of India (RBI), on behalf of the government, with an expressed purpose to sterilize excess liquidity from the system.

MSS (Market Stabilization Scheme) securities are issued with the objective of providing the RBI with a stock of securities with which it can intervene in the market for managing liquidity.The Reserve Bank under Governor YV Reddy initiated the MSS scheme in 2004.

These securities are issued not to meet the government’s expenditure.These are special bonds floated on behalf of the government by the RBI for the specific purpose of mop ping up the excess liquidity in the system when regular government bonds prove inadequate.These are mostly shorter-tenure bonds, of less than six months maturity. But the tenure differs depending on the requirement.

The bonds issued under MSS have all the attributes of the existing treasury bills and dated securities.These securities will be issued by way of auctions to be conducted by the RBI. The timing of issuance, amount and tenure of such securities will be decided by the RBI.

The money obtained under MSS should  be kept with the RBI in a separate account called MSS Account. It should not be transferred to the government. This is because, if it is transferred, government will spend the money in the economy thereby adding to liquidity.

Interest payments have to be given to the institutions who buys bond. Here, for the interest payment, the government allocates money from its budget to the RBI. This expenditure to service interest payment for MSBs is called carrying cost.