Treasury Bills or T-Bills: Treasury Bills, one of the safest money market instrument, are short term borrowing insturments of the Central Government of the country issued through the Cenral Bank. They are zero risk insturments. It is available both in the primary market as well as secondary market.
It is a promise to pay a said sum after a specified period. T-bills are short-term securitites that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturity periods.
The Central Goverment issues T-Bills at a price less than their face value(par value). They are issued with a promise to pay full face value on maturity. So, when the T-Bills mature, the goverment pays the holder its face value. The difference between the purchase price and the maturity value is the interest income earned by the purchaser of the instrument.
T-Bills are issued through a bidding process at auctions. The bid can be prepared either competitively or non-competitively.
In case of competitive bidding, the return on maturity is specified in the bid. In case the return specified is too high then the T-Bill might not be issued to the bidder.
In case of non-competitive bidding, return required is not specified and the one determined at the acution is received on maturity.
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