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Archive for the ‘Money Market’ Category

Treasury Bill

Posted by Prashant Shah on April 29, 2011

Treasury bills are a class of Central Government Securities. These securities are issued by the RBI on behalf of the government of India but it belongs to Government only. It is issued in the form of promissory notes or credited to Subsidiary General Ledger (SGL) account of the holder. As this instrument belongs to Government and having shorter maturity is considered virtually risk free.They are the most liquid instruments after cash.The main investors are banks cause T-bills are eligible for Statutory Liquidity Ratio (SLR).
 
Who can invest in treasury bills?
 
All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organizations, Nepal Rashtra bank and individuals are eligible to bid and purchase Treasury bills.

Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof.

 
Types of treasury bills:
  1. Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year.
  2. They are thus useful in managing short-term liquidity. 
  3. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day
  4. There are no treasury bills issued by State Governments.

Auction of treasury bills:

  1. T-bills are sold through an auction process announced by the RBI at a discount to its face value (face value is Rs.100 for treasury bills)
  2. RBI issues a calendar of T-bill auctions
  3. It also announces the exact dates of auction, the amount to be auctioned and payment dates.

Auction calendar:

Notified amount for auction of Treasury Bills
(April 1, 2011 to June 30, 2011)

 (` Crore)

Date of Auction

91 Days

182 Days

364 Days

Total

6-Apr-11

4,000

 

2,000

6,000

13-Apr-11

4,000

2,000

 

6,000

20-Apr-11

4,000

 

2,000

6,000

27-Apr-11

4,000

2,000

 

6,000

4-May-11

5,000

 

2,000

7,000

11-May-11

5,000

2,000

 

7,000

18-May-11

5,000

 

2,000

7,000

25-May-11

5,000

2,000

 

7,000

1-Jun-11

5,000

 

2,000

7,000

8-Jun-11

5,000

2,000

 

7,000

15-Jun-11

5,000

 

2,000

7,000

22-Jun-11

5,000

2,000

 

7,000

29-Jun-11

6,000

 

2,000

8,000

Total

62,000

12,000

14,000

88,000

 Source: www.rbi.org.in

Calculation of Yield:

Yield = [(FV-P)/P]*(365/N)*100

Where,

  • FV= Face value
  • P= Price
  • N= Days to maturity

 Let say 91 day treasury bill is issued at a price of Rs.98. What will be the yield?

Posted in CFP, Money Market | Leave a Comment »

Call Money Market

Posted by Prashant Shah on April 23, 2011

The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) are traded. It is one of the most liquid segment of the money market. This market can also be used to understand the behaviour of the future interest rates.

  1. The money that is lent for one day or overnight in this market is known as ‘Call Money’.
  2. If it exceeds one day (but less than 15 days) it is referred to as ‘Notice Money’.
  3. ‘Term Money’ refers to Money lent for 15 days or more in the Inter-Bank Market.

Lets understand the reason why banks borrow:

  1. ™ To fill the gaps or temporary mismatches in funds
  2. ™ To meet the CRR & SLR mandatory requirements as stipulated by the Central bank
  3. ™ To meet sudden demand for funds arising out of large outflows.

Features of call money market:

  1. Interest paid on call loans is known as call rates
  2. Quoted in annualized term
  3. Rate varies day to day and within the day
  4. High rate indicates tight liquidity position
  5. Low rate indicates ease in liquidity position

Call Money Market Participants :

  1. Those who can both borrow as well as lend in the market – RBI (through LAF) Banks, PDs
  2. Those who can only lend Financial institutions-LIC, UTI, GIC, IDBI, NABARD, ICICI and mutual funds etc.

Reserve Bank of India has framed a time schedule to phase out the second category out of Call Money Market and make Call Money market as exclusive market for Bank/s & PD (Primary Dealer)/s.

At present the call money market is dominated by banks only.

Posted in Investment Planning, Money Market | Leave a Comment »