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    The Central Bank engages in at least four types of bidding processes: open market operations, reverse repo auctions, foreign exchange auctions, and Treasury bill auctions. Open market operations involve buying and selling government securities. Reverse repo auctions allow banks to borrow funds by selling securities to the central bank. Foreign exchange auctions determine the exchange rate. Treasury bill auctions sell short term government debt. The company should choose selling commercial paper because it has a lower daily cost per Rs. 1,000 of 0.56% compared to discounting bankers' acceptances at 20.5% annually, which equates to a lower amount received per Rs. 100.

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    The Central Bank engages in at least four types of bidding processes: open market operations, reverse repo auctions, foreign exchange auctions, and Treasury bill auctions. Open market operations involve buying and selling government securities. Reverse repo auctions allow banks to borrow funds by selling securities to the central bank. Foreign exchange auctions determine the exchange rate. Treasury bill auctions sell short term government debt. The company should choose selling commercial paper because it has a lower daily cost per Rs. 1,000 of 0.56% compared to discounting bankers' acceptances at 20.5% annually, which equates to a lower amount received per Rs. 100.

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    7 views1 page

    Untitled

    Uploaded by

    maliha fatima
    The Central Bank engages in at least four types of bidding processes: open market operations, reverse repo auctions, foreign exchange auctions, and Treasury bill auctions. Open market operations involve buying and selling government securities. Reverse repo auctions allow banks to borrow funds by selling securities to the central bank. Foreign exchange auctions determine the exchange rate. Treasury bill auctions sell short term government debt. The company should choose selling commercial paper because it has a lower daily cost per Rs. 1,000 of 0.56% compared to discounting bankers' acceptances at 20.5% annually, which equates to a lower amount received per Rs. 100.

    Copyright:

    © All Rights Reserved
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    of 1

    Q 1.

    What types of bidding processes does the Central Bank engage in (there are at least 4). Discuss each
    type and provide example for each type of bidding.

    Q 2.

    The company has been expanding its operations over the years and has managed its finances
    accordingly. Now with the added capacity the company has been noting higher working capital
    requirements. In this background, they have the following:

    a. Selling Commercial Paper in the local money market. This comes with a cost of PKR 0.56 per PKR
    1,000 per day.
    b. Discounting their banker’s acceptance (customer is an exporter and sells to their customers on
    usance basis). This is done @ 20.5% per annum (or for every PKR 100 they receive PKR 79.5).
    However, it is pertinent to mention that the banker’s acceptance is in foreign currency.

    Which of the two options above would be less costly for the company and why?

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