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Explain the following money market instruments: (i) Treasury Bill and, (ii) Commercial Paper |
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Answer» Money Market is a market for short-term funds which deals in monetary assets whose period of maturity is upto one year. Following are the money market instruments: (a) Treasury Bills: Treasury bills (T-Bills) are issued by the Reserve Bank of India on behalf of the government of India as a short-term liability, and sold to the banks and to the public. The issue period ranges from 14 to 364 days. T-Bills are negotiable instruments, i.e., they are freely transferable. They are issued at a discount and redeemable at par. (b) Commercial Paper: A commercial paper is an unsecured promissory note, issued by a corporate firm with a fixed maturity period which varies from 15 days to 12 months. Since a CP is unsecured, it is issued only by a highly creditworthy, reputed leading firms. The original purpose of commercial paper is to provide short-term funds for seasonal and working capital. |
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