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Treasury Bills Market

Treasury Bills Market

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Published by Denis Brightson
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Published by: Denis Brightson on Jul 21, 2011
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04/17/2012

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TREASURY BILLSName: P. DenisClass: S.Y.A.FRoll no: 27
TREASURY BILLS MARKETSUMMARY
A treasury bill is nothing but a promissory note issued by the government underdiscount for a specified period stated therein. The government promises to pay thespecified amount mentioned therein to the bearer of the instrument on the due date.The period does not exceed a period of one year. It is purely a finance bill since it doesnot arise out of any trade transaction. It does not require any grading or endorsementor acceptance since it is a claim against the government Treasury bills are issued onlyissued by the RBI on behalf of the government. Treasury bills are issued for meetingtemporary government deficits. The treasury bill rate or the rate of discount is fixed bythe RBI from time-to-time. It is the lowest one in the entire structure of interest rates inthe country because of short term maturity and high degree of liquidity and security. T-bills are issued through a competitive bidding process at a discount from par,which means that rather than paying fixed interest payments like conventional bonds,the appreciation of the bond provides the return to the holder.
 
TREASURY BILLSName: P. DenisClass: S.Y.A.FRoll no: 27
Treasury
Bills- MEANING
Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at adiscount to face-value. The return to the investor is the difference between the maturityvalue and issue price.
Types Of Treasury Bills:
There are different types of Treasury bills based on thematurity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 6months and 12months Treasury bills etc. In India, at present, the Treasury Bills areissued for the following tenors 91-days, 182-days and 364-days Treasury bills.
Benefits Of Investment In Treasury Bills
1.
 
No tax deducted at source.2.
 
Zero default risk being sovereign paper.3.
 
Highly liquid money market instrument.4.
 
Better returns especially in the short term.5.
 
Transparency.6.
 
Simplified settlement.7.
 
High degree of tradeability and active secondary market facilitates meetingunplanned fund requirements.
F
eatures
 
Fo
rm:
The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialised form.
Minimum Am
o
unt Of Bids
Bids for treasury bills are to be made for a minimumamount of Rs 25000/- only and in multiples thereof.
 
Eligibility:
All entities registered in India like banks, financial institutions, Primary Dealers, firms,companies, corporate bodies, partnership firms, institutions, mutual funds, ForeignInstitutional Investors, State Governments, Provident Funds, trusts, researchorganisations, Nepal Rashtra bank and even individuals are eligible to bid and purchaseTreasury bills.
 
R
epayment:
 
TREASURY BILLSName: P. DenisClass: S.Y.A.FRoll no: 27The treasury bills are repaid at par on the expiry of their tenor at the office of theReserve Bank of India, Mumbai.
 
 Availability:
All the treasury Bills are highly liquid instruments available both in the primary andsecondary market.
 
Day count:For treasury bills the day count is taken as 365 days for a year.
 
ield Calculati
o
n
The yield of a Treasury Bill is calculated as per the following fomula:
 
Y = (100-P)*365*100P*DWherein Y = discounted yieldP= PriceD= Days to maturity
Example
A cooperative bank wishes to buy 91 Days Treasury Bill Maturing on Dec. 6, 2002 onOct. 12, 2002. The rate quoted by seller is Rs. 99.1489 per Rs. 100 face values. The YTMcan be calculated as following:The days to maturity of Treasury bill are 55 (October  20 days, November  30 daysand December  5 days)YTM = (100-99.1489) x 365 x 100/(99.1489*55) = 5.70%Similarly if the YTM is quoted by the seller price can be calculated by inputting the pricein aboveformula.
Primary Market 
The primary market, treasury bills are issued by auction technique.CALENDAR OF AUCTION FOR TREASURY BILLS
Treasury bill
Day of auction Day of payment 91 days Every Wednesday Following friday182 days Wednesday preceding thenon reporting fridayFollowing friday364 days Wednesday preceding thereporting FridayFollowing friday
Salient 
F
eatures Of The Aucti
o
n Technique:
The auction of treasury bills is done only at Reserve Bank of India, Mumbai.Bids are submitted in terms of price per Rs 100. For example, a bid for 91-day Treasurybill auction could be for Rs 97.50.

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