Question on Money Market and Capital Market
1. What is Treasury Bills (TB)? Treasury bills are categorized as money market instruments, issued when the government need money for a shorter period. It has a maximum maturity of 364 days. Treasury bills are presently issued in three maturities, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. Rather, they are issued at a discount (at a reduced amount) and redeemed (given back money) at the face value at maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. 2. What is Commercial Paper (CP)? It is a short term money market instrument, is issued at a discount (at a reduced amount) and redeemed at the face value at maturity. It is issued in the form of promissory note or in a dematerialised form. Big Corporate, primary dealers and the all India financial institution are eligible to issue CP. The maturity period of each commercial paper is SEVEN days to ONE year from the date of issue .CP can be issued denominations of Rs. 5lakh or multiples thereof. Only a schedule bank can act as an issuing and paying agent (IPA) for issuance of CP.
