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Questions and Answers
What are treasury bills?
Treasury bills are money market instruments issued by the Government of India as a promissory note with guaranteed repayment at a later date.
What is the maximum tenure of treasury bills?
364 days
How do individuals profit from treasury bills?
Individuals profit by purchasing treasury bills at a discount and receiving the full nominal value at maturity.
What are the types of treasury bills based on tenure?
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Treasury bills yield interest on total deposits.
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What is the minimum investment amount for treasury bills?
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What role does the Reserve Bank of India (RBI) play in treasury bills?
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What is a non-competitive bidding in the context of treasury bills?
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Study Notes
Treasury Bills
- Treasury bills are short-term debt instruments issued by the Indian government.
- The government uses these bills to finance short-term needs and manage the fiscal deficit.
- Treasury bills are offered at a discount to their face value and are redeemed at face value on maturity, providing investors with a return.
- They are zero-coupon securities, meaning they do not pay interest during their tenure.
- The Reserve Bank of India (RBI) utilizes treasury bills as part of its Open Market Operations (OMO) strategy to regulate money supply and influence inflation.
Types of Treasury Bills
- Treasury bills are categorized based on their maturity periods:
- 14-day treasury bills
- 91-day treasury bills
- 182-day treasury bills
- 364-day treasury bills
- The face value and discount rate of treasury bills fluctuate based on the RBI's monetary policy and funding needs, as well as demand in the market.
Features of Treasury Bills
- Risk-Free: Guaranteed by the Indian government, these bills offer a high level of security for investors.
- Liquidity: Short maturity period (maximum 364 days) makes them easily marketable, allowing investors to convert their holdings into cash if needed.
- Non-Competitive Bidding: Investors can participate in weekly auctions without submitting bids for price or yield, making them accessible to retail investors.
- Minimum Investment: The minimum investment amount required for a treasury bill is Rs. 25,000, and further investments must be multiples of this amount.
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Description
This quiz covers key concepts related to Treasury bills, including their functionality as short-term debt instruments issued by the Indian government. Participants will learn about the types of Treasury bills based on maturity periods and their features, such as being risk-free and zero-coupon securities. Test your understanding of how RBI uses these bills in monetary policy.
