Question

Due to your intellectual skills you have easily remembered the following instruments: (a) treasury bills, (b) certificates of deposit, (c) commercial papers, (d) repurchase agreements and (e) fed funds.

Question 6. Who issues each of the above mentioned securities and for what reason?

IT SHOULD BE BASED ON MONEY MARKET , FULL ANSWERS WITH EXAPLES AND REASINS.THANK YOU .

Answer 1

Answer -

a) Treasury Bills -These are Government bonds issued for short period, i.e.for less than one year.These are issued by the Government to meet temporary shortage of funds for public expenditure.These are auctioned by central bank at regular intervals.An investor who has short term surplus fund can make investment in these Treasury Bills at low market risk as these are issued by the Government.

b) Certificate Of Deposits -Certificate of deposit are a safe and secure fo of time deposit in which fixed amount of money deposited in a bank for certain fixed period and after the expiry of time period we will receive deposit with amount of interest as promised by bank.The time period to invest may be for 3 months,6 months,1'year or 5 year.Interest rate will be higher for long period.

c) Commercial Paper - These are money market securities issued by big corporations to fulfill their short term fund requirements ,i.e.These are specially issued for the payment of accounts payables, inventories or other short term liabilities.On the maturity date issuing company promises to pay only the amount mentioned on the note.

d) Repurchase Agreement - It is a short term borrowing for dealers in Government securities.In this case a dealer sell government securities to investor on overnight basis and purchases them back the next day at high prices.so these are known as Repurchase Agreement.

e) Fed Funds -These are also known as federal funds that commercial banks and other financial institutions deposit at regional federal banks.These funds can be used to meet funding requirements of market participants.

6) Who issues the above

Answer -

a) Treasury Bills issued by UK or US Government

b) Certificate of Deposits are issued by Scheduled commercial banks and selected financial institutions.

c) Commercial paper are issued by large corporations.

d) Repurchase Agreements are issued by dealers in government securities.

e) Fed fund are deposits by commercial banks in Federal Reserve Bank.