fixed income instruments

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Page 1: Fixed income instruments
Page 2: Fixed income instruments

CALL MONEY

NOTICE MONEY

TREASURY BILLS

REPOS

COMMERCIAL PAPER

CERTIFICATE OF DEPOSITS

Page 3: Fixed income instruments

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

Page 4: Fixed income instruments

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

Page 5: Fixed income instruments

A 1) Requires short term funds2) Does the Repo3) Sells securities4) Simultaneously agrees to repurchase the securities at a later date at a slightly higher price.5) Difference between sale price and repurchase price represents interest cost to A

B 1) Wants to make a short investment2) Does the Reverse Repo3)Buys securities4)Difference between sale price and repurchase price represents interest income to B

FUNDS

SECURITY

Page 6: Fixed income instruments

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

Page 7: Fixed income instruments

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

Page 8: Fixed income instruments

GILT EDGED SECURITIES (G-Secs)

PSU BONDS

CORPORATE BONDS/DEBENTURES

Page 9: Fixed income instruments