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Fixed income instruments
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Fixed income instruments

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  • 1.  CALL MONEY NOTICE MONEY TREASURY BILLS REPOS COMMERCIAL PAPER CERTIFICATE OF DEPOSITS
  • 2.  Call money market is an inter-bank market Day to day surplus funds are either borrowed by or lent to banks Maturity of loans is 1 day to 14 days Repayable on demand at the option of either lender or borrower, i.e. on call Notice Money – Money lent for a period exceeding I day Liquidity is very high
  • 3.  Commonly referred to as T-Bills Represent obligations of the GOI Tenor: 14-days, 90-days, 182-days, 364-days Do not carry an explicit coupon rate Sold at a discount and redeemed at par Have no credit risk Have negligible price risk Banks and Primary Dealers (PDs) are main holders – as part of their SLR requirements
  • 4. FUNDS SECURITY A B 1) Requires short term 1) Wants to make a shortfunds investment2) Does the Repo 2) Does the Reverse Repo3) Sells securities 3)Buys securities4) Simultaneously agrees to 4)Difference between sale pricerepurchase the securities at a and repurchase price representslater date at a slightly higher interest income to Bprice.5) Difference between saleprice and repurchase pricerepresents interest cost to A
  • 5.  Unsecured short-term instrument Issued by large corporates Sold at a discount and redeemed at par Interest rate will depend on overall short-term money market rates and credit standing of the issuer Individual investors can invest in CPs. Banks cannot accept CPs Usually has a maturity period of 90 – 180 days
  • 6.  Short-term, transferable instrument Issued by banks and financial institutions Generally risk-free CDs carry an interest rate Banks, financial institutions, corporates and MFs are primary investors in CPs. Usually has a maturity period of 3 months to 1 year
  • 7.  GILT EDGED SECURITIES (G-Secs) PSU BONDS CORPORATE BONDS/DEBENTURES