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TREASURY BILLS MARKET

TREASURY BILLS MARKET. TB is a kind of a promissory note put out by the government of a country. It is only the central govt. that sells TB in India after 1950. Qualities of TBs:. High liquidity Absence of risk of default ready availability on tap Assured yield Low transaction cost

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TREASURY BILLS MARKET

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  1. TREASURY BILLS MARKET

  2. TB is a kind of a promissory note put out by the government of a country. It is only the central govt. that sells TB in India after 1950.

  3. Qualities of TBs: • High liquidity • Absence of risk of default • ready availability on tap • Assured yield • Low transaction cost • Negligible capital depreciation

  4. Two types of TBs have been in vogue in India- • Ordinary • Adhoc (1937- Ist. April 1997) • A system of Ways and Means (WAM) introduced on Ist. April 1997, to accommodate mismatch between GOI receipts and payments.

  5. System of Marketing • TBs are issued by tender or on tap. Until 1965, they were sold to the public by tender or at weekly auctions. • With effect on 12th July 1965, they were available on tap throughout the week at rates announced from time to time.

  6. This change in the procedure of selling TBs facilitates investment in them by commercial banks as an when their resources increased. • Banks’ participation in TBS is much more significant in India than those of UK and US.

  7. Limitations of TBM in India • Only RBI ( whereas banks and discount houses deals in TBM in UK) • Low rate of return on investment.

  8. Investing in GSM is without risk and a relatively higher return, FIs are also required to invest in GSM. • Banks in India are required to invest in GSM for maintaining their SLR, this has reduced the importance of TBM as an investment medium.

  9. Chakravarty and Vagul Committee • The major suggestion made by them was to deregulate and revise the TBs rate upwards. • Since then the fixed rate of discount of 4.6% on of 91 –day TBs was replaced by the system of flexible interest rate. • From 1993 the TB rate became market determined.

  10. 182-Day TBM • To widen the money market, a 182 day TB was introduced in November 1986. • This bill could be purchased by any person in India but unlike 91 day TBs, they were not purchased by state govts. and for provident funds.

  11. The 182 day TBs ceased to be issued from October 1992. the bill thus had a short life span of about 6 years.

  12. 364-Day TBM • Introduced in 1992. • The return on this particular bill is quite high compare to other bills. • Features are similar with that of 182 day TBs.

  13. 14- Day TBM • Intermediate TB introduced on Ist April 1997 and 20th May 1997. • Sold only to state govts., foreign central banks and other specified bodies to invest their temporary cash surpluses (in place of 91-day).

  14. It can be renewed on the expiry of the 14 days from the date of issue. • The discount rate is set at quarterly intervals. • The state govts and other investors who used to receive a 4.6% fixed rate can now receive a market determined interest. • Disadvantage: Not tradeable or transferable.

  15. RECENT DEVELOPMENTS IN TBM • THE RBI ISSUED ONLY 91-DAY AND 364 DAY TBs. • 364-DAY IS MUCH BIGGER NOW THAN THE 91-DAY TBM. • THE 364-DAY TBs ACCOUNT FOR THE MAJOR PROPORTION OF THE OUTSTANDING TBs.

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