How governement manages liqudity in a nation?


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This slideshare provides you insights about relationship between monetary policy and fiscal policy and finally the overall impact on the liquidity of the nation.
Furthermore, it deals with how the central bank uses treasury bills tools to manage liquidity of the country.

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How governement manages liqudity in a nation?

  1. 1. Co-ordination between Fiscal Policy Monetary Policy& Liquidity Management in Presented By: March 5, 2014 Himalaya Ban of Nepal 1-16
  2. 2. Individual Vs Government Budget 2-16
  3. 3. Individual Estimation of Expenses Earn Government Estimation of Expenses Earning Sources Individual Budget Government Budget 3-16
  4. 4. Summary of Income and Expenditure Revenue 216644355 Total Expenditure 337900000 Surplus (+) Deficit (-) (121255645) Foreign Grant 65344230 Surplus (+) Deficit () ( 55911415 ) Foreign Loan 22231415 Domestic Borrowing 33680000 Why Government issues securities? 4-16
  5. 5. Types of Government securities Short term security: T-bill Long term securities 5-16
  6. 6. Short term Government securities issued by NRB Treasury Bill (T-bill)  The primary purpose of issuing T-bill is to make fund available to government whereas secondary purpose is to manage liquidity in market.  Treasury bill is a short-dated government security, yielding no interest but issued at a discount on its redemption price.  Maturity period of Treasury bill are 28 days, 91 days, 182 days and 364 days in context of Nepal.  Among them 91 days T-bill is very famous in Nepalese Market.  NRB issued T-bill on every Monday and made allotment in Tuesday.  There is proper bidding mechanism in NRB 1. Repo 2. Reverse Repo 3. Outright Purchase 4. Outright sale Secondary transaction of T-bills 6-16
  7. 7. Repo: Repurchase Agreement Loan (Cash) T-Bills NRB Opening Leg  A Repo is a sale of securities coupled with an agreement to repurchase the same securities at a higher price on a later date.  It arranged for short period, typically ranging from overnight to 4 weeks.  The ownership of securities is not transferred  It is designed to inject liquidity 7-16
  8. 8. T-Bills Loan + Interest NRB Closing Leg Repo: Repurchase Agreement 8-16
  9. 9. Unissued T-Bills Cash (Loan) NRB Opening Leg Reverse Repo  Under Reverse Repo NRB borrows from the Commercial banks with the objective of moping –up excess liquidity from the system.  It is designed to withdrawal liquidity. 9-16
  10. 10. T-Bills NRB Closing Leg Reverse Repo Loan + Interest 10-16
  11. 11. Outright purchase Cash T-Bills NRB 11-16
  12. 12. UnissuedT-Bills Cash NRB Outright Sale 12-16
  13. 13. Standing Liquidity Facility (SLF) COMMERCIAL BANKS NRB T-Bill, Bond as Collateral Short Term Loan 13-16
  14. 14. • SLF rate is determined through weighted average of 91 days T-Bill + 3% panel rate determined by OMOC • NRB always tries to promote that liquidity problems be solved within the commercial banks. • NRB stands as lender of last resort and SLF is used by NRB as solution for short term remedy only • Thus to penalize the bank, it charges extra 3% as penalty rate. 14-16
  15. 15. • The primary purpose of issuing the T-Bills is to implement the fiscal policy. • The Secondary purpose is to implement the monetary policy. • Two types of bond short term and long term. • The different type of instrument were used by NRB to maintain the liquidity in the market. Conclusion 15-16
  16. 16. 16-16