Questions and Answers
What are Treasury Bills (T-bills) issued by?
How many lengths to maturity do T-bills come in?
Three
T-bills are auctioned monthly.
False
What is a certificate of deposit (CD)?
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What is the maximum fixed maturity for commercial paper?
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Commercial paper is secured by collateral.
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What is a banker's acceptance primarily used for?
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What are repurchase agreements also known as?
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What do firms that issue capital market securities and investors have?
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Study Notes
Treasury Bills
- T-bills are short-term notes from the Philippine government with maturities of 91, 182, and 364 days.
- Weekly auctions for 91 and 182-day T-bills; 364-day T-bills auctioned monthly.
- Purchases can be made directly via auctions or through the secondary market.
- Bidders can submit competitive bids (risk of non-allocation) or noncompetitive bids (secured at average price).
Certificates of Deposit
- CDs are issued by federally chartered banks representing deposited funds with specific returns over a fixed period.
- Range of maturity rates from 30 days to six months or longer, face value varies.
- Early withdrawal usually incurs penalties; some CDs may be sold to another investor before maturity.
Commercial Paper
- An unsecured promissory note used in global finance with a maturity of up to 270 days.
- Issued by large corporations to meet short-term obligations like payroll.
- Depends on the issuer’s creditworthiness due to lack of collateral; only firms with excellent credit ratings can sell competitively.
- Priced at a discount from face value, lower interest rates compared to bonds, and interest rates fluctuate with market conditions.
Bankers' Acceptances
- Instruments created by nonfinancial corporations but underwritten by banks, indicating future payment.
- Utilized primarily in financing foreign trade or purchasing on credit, also aids in inventory financing.
- Maturities typically range from one to six months, with banks acting as guarantors considering the issuer's creditworthiness.
Repurchase Agreements
- Repos are agreements where Treasury securities are sold with a promise to repurchase at a higher price later.
- Considered the most liquid of money market investments, with maturities ranging from 24 hours to several months.
- Function similarly to bank deposit accounts, facilitating the transfer of excess cash for corporations.
Purpose of the Capital Market
- Issuers of capital market securities differ significantly from investors purchasing these instruments.
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Description
This quiz explores the key aspects of Treasury bills (T-bills) issued by the Philippine government. Learn about their maturity periods, auction processes, and purchasing methods. Test your knowledge on short-term government securities.
