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TREASURY BILLS

it is a kind of finance bill,which are in the nature of promissory notes issued by reserve bank of india on behalf of the government on discount at face value for a fixed period (one year or less from there issue date) .

features
TBs

issued for raising short term funds for bridging temporary gaps between receipts and expenditure. These bills doesnt carry any interest rates. TBs get issued on discount on face value but get redeemed at par. These bills are issued on behalf of government. TBs have a maturity of generally 91 days. TBs helps to infuse liquidity in economy.

Classification of TBs
There are mostly two types of treasury bills:
i) Ordinary treasury bills

ii) Ad hoc treasury bills

91 days treasury bills i) Ordinary treasury bills: These are issued by RBI on behalf of central government to the general public, corporate houses and bank. These bills are freely marketable ; can be bought and sold at any time in secondary market.

ii) Ad hoc treasury bills: These are always issued in favour of RBI. These are especially issued for the financial support to the government. These bills are never be issued to the general public in secondary market.

ADVANTAGES OF TBS

Treasury bills are risk free of default of payment by the issuer. Treasury bills offer a safe return to investors . There are not many fluctuation in the discount rates. It is also possible for the government to mop up excess liquidity in the economy through issue of treasury bills. It helps in compensating the risk of other securities of investors in heir portfolio.

DISADVANTAGES OF TBS
They have extremely low return on investment . The TBs rates in India has been the lowest rate of interest in the entire rate structure. Central government issued treasury bills on discount so no profits are there for government other than raising the short term funds.

Reserve Bank of India


Reserve bank of India is the central bank of

country. It was set up in 1st April 1935. Before 1949 RBI was a private institute but after, it get converted in to bank. On establishment it took over the functions of management of currency from the government of India.

Functions of RBI
Maintain monetary stability. Maintain financial stability. Maintain stable payment system. Promote development of financial

infrastructure. To regulate the overall volume of money and credit in the economy.

Role/ power of RBI


Has a authority of issuing the notes.

RBI is authorized to carry out periodical inspection

of the banks and to call for return and necessary information from them. RBI issues license for new banks and branch expansion. RBI provide overdraft facility to other banks. RBI is the government bank.

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