14 Days intermediate T - bills were brought into effect from 1996 - 97 after the abolition of which of the following? 1. 91 Days T - bills 2. 182 Days T - bills 3. 273 Days T - bills 4. 364 Days T - bills
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Understanding Treasury Bills and their Evolution
Treasury Bills, commonly known as T-bills, are short-term money market instruments issued by the government to meet its short-term funding requirements. They are zero-coupon securities, meaning they are issued at a discount to their face value and the difference between the issue price and the face value is the return to the investor.
Changes in Treasury Bill Structure in 1996-97
The structure of Treasury Bills in India has evolved over time. In the financial year 1996-97, significant changes were implemented. One key change was the introduction of the 14-day intermediate T-bill. This introduction was linked to the phasing out or abolition of another existing type of T-bill.
Analyzing the Abolished Treasury Bill
Prior to 1996-97, several tenors of T-bills were in circulation. The question specifically asks which T-bill was abolished leading to the introduction of the 14-day intermediate T-bill. Based on financial history records concerning the evolution of the Indian money market instruments:
- The 91 Days T-bills were a prominent short-term instrument.
- The 182 Days T-bills and 364 Days T-bills represented medium to slightly longer short-term tenors.
- The 273 Days T-bills were also part of the structure at certain points or considered.
During the reforms in 1996-97, the 91 Days T-bills were abolished. Following this abolition, the 14-day intermediate T-bills were introduced. This change was part of a broader effort to streamline the money market and introduce new instruments aligned with evolving market needs.
| Period | Key Changes in Treasury Bills |
|---|---|
| Before 1996-97 | Included instruments like 91 Days T-bills, 182 Days T-bills, 364 Days T-bills. |
| 1996-97 | Abolition of 91 Days T-bills. Introduction of 14 Days intermediate T-bills. |
Therefore, the 14 Days intermediate T-bills were brought into effect from 1996-97 after the abolition of the 91 Days T-bills.
Revision Table: Treasury Bill Tenors
| Treasury Bill Tenor | Status in 1996-97 Changes |
|---|---|
| 91 Days T-bills | Abolished |
| 182 Days T-bills | Continued/Modified (Part of the structure) |
| 273 Days T-bills | Less common/Specific issuance periods |
| 364 Days T-bills | Continued/Modified (Part of the structure) |
| 14 Days intermediate T-bills | Introduced |
Additional Information: Treasury Bills and Money Market
Treasury Bills are crucial instruments in the money market, which is the market for short-term funds. They are issued by the central bank (Reserve Bank of India in India) on behalf of the government. Key characteristics include:
- Short Term: Maturities are typically less than one year.
- Zero-Coupon: Issued at a discount; no periodic interest payments.
- Risk-Free: Considered highly safe as they are government obligations.
- Liquidity: Highly liquid as they can be easily traded in the secondary market.
The changes in T-bill tenors, like the abolition of 91-day bills and introduction of 14-day bills in 1996-97, reflect the Reserve Bank of India's efforts to manage liquidity effectively and develop the money market structure.
Important Questions from Money Market
What is ‘Issue Price’?
_________ is a situation in the bonds market when the rate of interest falls to its lowest level and the speculative demand for money becomes perfectly elastic.
________ is the money which is accepted as a medium of exchange because of the trust between the payer and the payee.
When the general interest rate reaches a very low level, which of the following statements will be correct?
Choose incorrect statement from the following:
1. 28 Days T - bills were introduced in 1998
2. 364 Days T - bills were introduced in 1992
3. 182 Days T - bills were introduced in 1986
4. 273 Days T - bills were introduced in 2006
