38381391 Commercial Bills Makt

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COMMERCIAL

BILLSMARKET


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Prepared By :-

Roohi Jaiswal 17

Ruchi Thakur 55

Kesar Kothari 20Rashmi Choudhary 03


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Content

Money Market : What it is?

Common Money Market Instrument

Bill Market Treasury Bill

Commercial Bill


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Commercial Bill Market

Definition Benefits

Features

At a GlanceWhy do commercial bills have higher

yields than treasury bills?


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Money Market: What it is?

The money market is a subsection of the fixed incomemarket. We generally think of the term fixed income asbeing synonymous to bonds. In reality, a bond is just onetype of fixed income security.

In finance, the money market is the global financial

market for short-term borrowing and lending.It provides short-term liquid funding for the globalfinancial system.

The money market is where short-term obligations suchas Treasury bills, commercial paper and bankers'acceptances are bought and sold.
http://www.investopedia.com/terms/f/fixed-incomesecurity.asphttp://www.investopedia.com/terms/b/bond.asphttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Treasury_securityhttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Bankers'_acceptancehttp://en.wikipedia.org/wiki/Commercial_paperhttp://en.wikipedia.org/wiki/Treasury_securityhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Global_financial_systemhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Financehttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/f/fixed-incomesecurity.asp


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The money market consists of financial institutions anddealers in money or credit who wish to either borrow orlend.

Participants borrow and lend for short periods of time,typically up to thirteen months. Money market trades inshort term financial instruments commonly called

"paper".This contrasts with the capital market for longer-termfunding, which is supplied by bonds and equity.
http://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Financial_instrument


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Common Money Market Instrument

Bankers AcceptanceCertificate of Deposit

Repurchase Agreement

Commercial paper

Eurodollar DepositFederal Agency Short Term Securities

Federal Funds

Municipal Notes

Treasury Bills

Money Market Mutual Fund


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Bill MarketThere are two types of bill market

Treasury Bill market Treasury bill is a monetary instrument through

which government raise fund from short periodrequirement and commercial bank invest theirshort period surpluses by buying these billsfrom government.

There are three important types of treasurybills:

1. 91-days treasury bill2. 182-days treasury bill3. 364-days treasury bill


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Commercial Bill Market

Commercial bill of exchange is drawn by onemerchant firm on another which usually arisesout of domestic transaction.

The seller can reimburse the bill when buyers

delays payments.Since traders do not find commercial bills a very

convenient way of making payment, since thecash- credit system is more popular in bankinglendings.


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The RBI introduced the Bills Market scheme (BMS) in1952 and the scheme was later modified into the New

Bills Market Scheme (NBMS) in 1970.Under the scheme, commercial banks can rediscount thebills, which were originally discounted by them, withapproved institutions (viz., Commercial Banks,

Development Financial Institutions, Mutual Funds,Primary Dealer, etc.).


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Benefits

Choice - choice of floating or fixed interest rate.

Convenience - facility can commence on any

business day and drawdown dates can bemonthly, quarterly, half yearly or tailored to suityour cash flow requirements.

Flexibility - facility terms of 1 to 5 years.


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Features

Drawdown terms range from a minimum of 30 days to amaximum of 185 days.Finance for amounts over $500,000.Floating Rate Bill

The drawdown rate and the term to maturity of the billare agreed at the time of the drawdown.by the term of the bill.The National accepts the bills and discounts the bills onthe required date at the National's Bank Bill drawdownrate of the day.

The interest rate applicable is determined


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Fixed Rate Bill

The drawdown rate is fixed for the term of thefacility. The aggregate face amount of the bills tobe discounted and the drawdown dates areestablished prior to the first drawdown date.


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At A Glance

PurposeInterest

Rate

Term

Interest Types

Minimum AmountInterest Frequency

Repayment FrequencySecurity

Fees and Charges


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Why do commercial bills have higheryields than treasury Bills?

The reason that commercial bills have higher yieldsthan T-bills is due to the varying credit quality of each billtype.

The credit rating of the entity issuing the billgives investors an idea of the likelihood that they will bepaid back in full.The federal government's debt (T-bills) is considered tohave the highest credit rating in the market because of

its size and ability to raise funds through taxes.
http://www.investopedia.com/terms/c/commercialpaper.asphttp://www.investopedia.com/terms/t/treasurybill.asphttp://www.investopedia.com/terms/c/creditrating.asphttp://www.investopedia.com/terms/c/creditrating.asphttp://www.investopedia.com/terms/t/treasurybill.asphttp://www.investopedia.com/terms/t/treasurybill.asphttp://www.investopedia.com/terms/t/treasurybill.asphttp://www.investopedia.com/terms/c/commercialpaper.asp


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On the other hand, a company that issues commercialbills does not have the same ability to generate cashinflow because it does not have the same power overconsumers that a government has over its electorate.

In other words, commercial bills and T-bills differ in thecredit quality of the bodies that issue them. A

higher yield acts as compensationfor investors who choose the higher-risk commercialbills.
http://www.investopedia.com/terms/y/yield.asphttp://www.investopedia.com/terms/y/yield.asp


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THANK YOU

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38381391 Commercial Bills Makt