COMMERCIAL BILLS MARKET

Prepared By :Roohi Jaiswal Ruchi Thakur Kesar Kothari Rashmi Choudhary 17 55 20 03

Content
Money Market : What it is? Common Money Market Instrument Bill Market Treasury Bill Commercial Bill

Commercial Bill Market Definition Benefits Features At a Glance Why do commercial bills have higher yields than treasury bills?

Money Market: What it is?

The money market is a subsection of the fixed income market. We generally think of the term fixed income as being synonymous to bonds. In reality, a bond is just one type of fixed income security. In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short term financial instruments commonly called "paper". This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity.

Common Money Market Instrument

Bankers Acceptance Certificate of Deposit Repurchase Agreement Commercial paper Eurodollar Deposit Federal Agency Short Term Securities Federal Funds Municipal Notes Treasury Bills Money Market Mutual Fund

Bill Market
There are two types of bill market Treasury Bill market Treasury bill is a monetary instrument through which government raise fund from short period requirement and commercial bank invest their short period surpluses by buying these bills from government. There are three important types of treasury bills: 91-days treasury bill 182-days treasury bill 364-days treasury bill

1. 2. 3.

 Commercial Bill Market Commercial bill of exchange is drawn by one merchant firm on another which usually arises out of domestic transaction. The seller can reimburse the bill when buyers delays payments. Since traders do not find commercial bills a very convenient way of making payment, since the cash- credit system is more popular in banking lendings.

Commercial Bill Market Definition

A commercial bill is a method of raising short-term finance. It is also known as a time draft or bill of exchange. A commercial bill is an unconditional order in writing, addressed by one person (the drawer) to another (the drawee), signed by the person giving it (the drawer), requiring the person to whom it is addressed (the drawee), to pay on demand or at a fixed or determinable future date a certain sum of money to a specified person or to the bearer. Commercial bills are negotiable instruments.

The RBI introduced the Bills Market scheme (BMS) in 1952 and the scheme was later modified into the New Bills Market Scheme (NBMS) in 1970. Under the scheme, commercial banks can rediscount the bills, which were originally discounted by them, with approved institutions (viz., Commercial Banks, Development Financial Institutions, Mutual Funds, Primary Dealer, etc.).

Benefits
Choice - choice of floating or fixed interest rate. Convenience - facility can commence on any business day and drawdown dates can be monthly, quarterly, half yearly or tailored to suit your cash flow requirements. Flexibility - facility terms of 1 to 5 years.

Features
Drawdown terms range from a minimum of 30 days to a maximum of 185 days. Finance for amounts over $500,000. Floating Rate Bill The drawdown rate and the term to maturity of the bill are agreed at the time of the drawdown. by the term of the bill. The National accepts the bills and discounts the bills on the required date at the National's Bank Bill drawdown rate of the day. The interest rate applicable is determined

Fixed Rate Bill The drawdown rate is fixed for the term of the facility. The aggregate face amount of the bills to be discounted and the drawdown dates are established prior to the first drawdown date.

At A Glance
Purpose Interest Rate Term Interest Types Minimum Amount
Interest Frequency Repayment Frequency Security Fees and Charges

Why do commercial bills have higher yields than treasury Bills?

The reason that commercial bills have higher yields than T-bills is due to the varying credit quality of each bill type. The credit rating of the entity issuing the bill gives investors an idea of the likelihood that they will be paid back in full. The federal government's debt (T-bills) is considered to have the highest credit rating in the market because of its size and ability to raise funds through taxes.

On the other hand, a company that issues commercial bills does not have the same ability to generate cash inflow because it does not have the same power over consumers that a government has over its electorate. In other words, commercial bills and T-bills differ in the credit quality of the bodies that issue them. A higher yield acts as compensation for investors who choose the higher-risk commercial bills.

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