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
The interest rate at which the Reserve Bank absorbs liquidity from banks under the Liquidity Adjustment Facility (LAF), on an overnight basis, against the collateral of eligible government securities, is called _____.
When the general interest rate reaches a very low level, which of the following statements will be correct?
Which of the following statements are true in context of efficient market?
A. Equilibrium rates of return will prevail
B. Investor cannot earn a positive return
C. Volatility will be very high
D. Securities of listed firms sell at their fair values
E. Investors are generally risk-averse
Choose the most appropriate answer from the options given below:
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