Treasury Bills

Organized Money Market
Call money market

Bill Market
Treasury bills
Commercial bills
Bank loans (short-term)
Organised money market comprises
RBI, banks (commercial and cooperative)
3/24/2011
Purpose of the money

market
Banks borrow in the money market to:
Fill the gaps or temporary mismatch of funds

To meet the CRR and SLR mandatory
requirements as stipulated by the central bank
To meet sudden demand for funds arising out of
large outflows (like advance tax payments)
Call money market serves the role of

equilibrating the short-term liquidity
position of the banks
3/24/2011
Bill Market
Treasury Bill market- Also called the T-Bill market
These bills are short-term liabilities (91-day, 182-day,
364-day) of the Government of India
It is an IOU of the government, a promise to pay the
stated amount after expiry of the stated period from
the date of issue
They are issued at discount to the face value and at
the end of maturity the face value is paid
The rate of discount and the corresponding issue price
are determined at each auction
RBI auctions 91-day T-Bills on a weekly basis, 182-day
T-Bills and 364-day T-Bills on a fortnightly basis on
behalf of the central government
3/24/2011
Certificates of Deposit
CDs are short-term borrowings in the form of UPN
issued by all scheduled banks and are freely
transferable by endorsement and delivery.
Introduced in 1989
Maturity of not less than 7 days and maximum up
to a year. FIs are allowed to issue CDs for a period
between 1 year and up to 3 years
Subject to payment of stamp duty under the
Indian Stamp Act, 1899
Issued to individuals, corporations, trusts, funds
and associations
They are issued at a discount rate freely
determined by the market/investors
3/24/2011
Treasury Bills
treasury bills are impotent money
market instruments. These are
issued by govt of India in regular
basis. These bills are not carrying
any fixed interest rate. these bills
are issued at discount value and
redeemed at par value returns
depend on maturity period and
discount rate
3/24/2011
Treasury Bills are the instruments of

short
term
borrowing
by
the
Central/State
govt.
They
are
promissory notes issued at discount
and for a fixed period.
Treasury bills can be purchased by any
one (including individuals). These are
issued by RBI and sold through
fortnightly or monthly auctions at
varying discount rate depending upon
the bids.
3/24/2011
Denomination
Minimum amount of face value Rs.1 lac and in
multiples there of. There is no specific amount/limit
on the extent to which these can be issued or
purchased.
Maturity : 91 days and 364 days.
Rate of interest
Market determined, based on demand for and supply
of funds in the money market.
Other features
These are highly liquid and safe investment giving
attractive yield.
Approved assets for SLR purposes and DFHI is the
market maker in these instruments and provide
(daily) two way quotes to assure liquidity.
RBI sells treasury bills on auction basis (to bidders
quoting above the cut-off price fixed by RBI) every
fortnight by calling bids from banks, State Govt. and
other specified bodies.
DATED SECURITIES
These are those instruments which have tenure over7
3/24/2011
Certificate of Deposits
A certificate of deposit(CD) is atime
deposit with a bank. CDs are generally
issued by commercial banks but they
can be bought through brokerages.
They bear a specific maturity date
(from three months tofive years), a
specified interest rate, and can be
issued in any denomination. Like all
time deposits, the fundsmay not be
withdrawn on demand like those in a
checking account
3/24/2011
Withdrawals
Withdrawals before maturity are usually
subject to a substantial penalty. For a
five-year CD, this is often the loss of six
months'
interest.
These
penalties
ensure that it is generally not in a
holder's best interest to withdraw the
money before maturityunless the
holder has another investment with
significantly higher return or has a
serious need for the money. Banks will
charge a penalty fee if the money is
withdrawn from the CD before it
3/24/2011
TBs Vs. CDs

We can compare certificate of deposits with
treasury bills as they are short term, tradable,
discounted bonds. But the difference is T-Bills
are issued by government and CDs are issued
by banks, financial institutions.
Features of Certificate Of Deposit
Document of title to time deposit.
Unsecured negotiable promotes.
Freely transferable by endorsement and
delivery.
Issued at discount to face value.
3/24/2011
10
Repayable
on a fixed date without grace days.
Commercial Papers
Short-term borrowings by corporates, financial
institutions, primary dealers from the money market
Can be issued in the physical form (Usance
Promissory Note) or demat form
Introduced in 1990
When issued in physical form are negotiable by
endorsement and delivery and hence, highly flexible
Issued subject to minimum of Rs. 5 lacs and in the
multiple of Rs. 5 lacs after that
Maturity is 7 days to 1 year
Unsecured and backed by credit rating of the issuing
company
Issued at discount to the face value
3/24/2011
11
Commercial Papers
Commercial paper is a short-term
unsecured promissory note issued by
corporations and foreign governments
for many large, creditworthy issuers.
Commercial paper is a low-cost
alternative to bank loans. Issuers are
able to efficiently raise large amounts
of funds quickly.
3/24/2011
12
Commercial paper can be defined as a short term,

unsecured promissory notes which are issued at
discount to face value by well known companies that
are financially strong and enjoy a high credit rating.
Here are some of the features of commercial paper
1. They are negotiable by endorsement and delivery
and hence they are flexible as well as liquid
instruments. Commercial paper can be issued with
varying maturities as required by the issuing
company.
2. They are unsecured instruments as they are not
backed by any assets of the company which is issuing
the commercial paper.
3. They can be sold either directly by the issuing
company to the investors or else issuer can sell it to
the dealer who in turn will sell it into the market.
4. It helps the highly rated company in the sense they
can get cheaper funds from commercial paper rather
than borrowing from the banks.
However
use of commercial paper is limited to only
3/24/2011
13
blue chip companies and from the point of view of
Commercial paper is a short term debt

instrument issued by a company. The
main characteristics of commercial
paper are:
It is unsecured.
It is short term (maturity and full
repayment usually within an year of
issue).
It is usually less liquid than bonds there is no real secondary market
3/24/2011
14
Commercial bills
Issued by firms engaged in business.
An important device for providing short
term finance to trade and industry.
Commercial bills are marketable i.e. they
can be sold any number of times in the
money market.
Commercial paper is a money-market
security issued by large banks and
corporations. It is generally not used to
finance long-term investments but rather to
purchase inventory or to manage working
capital
3/24/2011
15
An unsecured, short-term debt instrument

issued
by
a
corporation,
typically
forthefinancing
of
accounts
receivable,inventories andmeeting shortterm liabilities. Maturities on commercial
paper rarely range any longer than 270
days.The debtisusually issued at a
discount,
reflecting
prevailing
market
interest rates.
Commercial paper is notusually backed by
any form of collateral, so only firms with
high-quality debt ratings will easily find
buyers without having to offera substantial
3/24/2011
16
A major benefit of commercial paperis

that itdoes not need to be registered
with the Securities and Exchange
Commission(SEC) as long as it
matures before nine months (270
days), making it avery cost-effective
meansof financing. The proceeds from
this type of financing can only be used
on current assets (inventories) and are
not allowed to be used on fixed assets,
such as a new plant, without SEC
involvement.
3/24/2011
17
Discount Market
A trading market in which notes, bills,
and other negotiable instruments are
discounted
The part of the money market
consisting of banks, discount houses,
and brokers on which bills are
discounted
3/24/2011
18

Treasury Bills

Uploaded by

Copyright:

Available Formats

Treasury Bills

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Treasury Bills

Uploaded by

Copyright:

Available Formats

Organized Money Market

Call money market

Purpose of the money

Banks borrow in the money market to:

Fill the gaps or temporary mismatch of funds

Call money market serves the role of

Treasury Bills are the instruments of

TBs Vs. CDs

Commercial paper can be defined as a short term,

Commercial paper is a short term debt

An unsecured, short-term debt instrument

A major benefit of commercial paperis

You might also like