Consider the following statements regarding Treasury Bills (T-Bills) issued by the Government of India:
1. T-Bills are zero-coupon instruments.
2. T-Bills are issued only through price-based auctions.
3. Only the central government can issue them.
How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None
Explanation Statement 1 is correct: Treasury Bills (T-Bills) are money market instruments issued at a discount to face value and redeemed at par.They do not carry a coupon (interest payment).Hence they are zero-coupon instruments.The difference between issue price and face value is the investor’s return.
Statement 2 is correct: T-Bills are always issued via price-based auctions. Since they don’t carry coupons, the yield is discovered through the discount price, making a price-based format most suitable.
Statement 3 is correct: Only the Central Government of India issues T-Bills under powers provided by the Government Securities Act, 2006.State governments cannot issue T-Bills; they issue State Development Loans (SDLs) instead, which are dated securities.
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