Ch9 S2

Front 1

T-Bills

Back 1

ST debt obligations that are extremely liquid and of the highest quality

Front 2

Tbill characteristics

Back 2

1.Sold at a DISCOUNT in min denominations of $1000
2.Do not have fixed int rate
3.Do NOT have reinvestment risk

Front 3

Taxation of tbilld

Back 3

The RETURN or DISCOUNT is
1.Exempt from state and local but subject to federal
2.Taxed as INTEREST INCOME

Front 4

Marketability and redeemability of tbills

Back 4

1.Not redeemable until maturity
2.Not callable

Front 5

Tbill maturities

Back 5

1. 1m(4weeks),3m(13 weeks), 6m(26 weeks), 12m(52 weeks)
2. The 1m,3m,6m are auctioned every MONDAY and ssettle on THURSDAY
3. The aucton for the 1yr is monthly

Front 6

Competitive tender price

Back 6

The average price of all competetive bids that individuals pay at WEEKLY auctions

Front 7

Settlement for tbills

Back 7

1.At auction= T+3
2.Secondary market= T+1

Front 8

Quotations for t-bills

Back 8

1.Bid quote is higher than the ask quote

Front 9

Basis points on t-bills

Back 9

1.$100 on a 12m tbill
2. $50 on a 180day tbill
3. $25 on a 3m tbill

Front 10

Reason tbills are issued

Back 10

To finance deficits in the federal budget

Front 11

T or F
When the FOMC is attempting+ to control the reserve position of commercial banks, they will most frequently buy and sell t-bills

Back 11

T

Front 12

T-notes & T-bond characteristics:

Back 12

1.Fixed rate of interest
2.Interest is paid semi-annual, which is exempt from state and local but subject to fed
3.Minimum denomination of $1000
4.Settlement is t+1

Front 13

Tnotes maturity

Back 13

2-10 yrs, not callable

Front 14

Tbonds maturity

Back 14

10-30yrs,callable

Front 15

TIPS

Back 15

1.Int and redemption payments are 'indexed' to current inflation rate based on the CPI
2.Int is paid semi annually, subject to fed but exempt from state and local
3.Principle is adjusted semi annually
4.Final payment CANNOT be less than what inv originall paid
5.Auctioned in July, October, and January
*Preserve an inv principal BEST among Treasury securities

Front 16

Repurchase agreement:'Repos'

Back 16

When a dealer sells treasury securities with an agreement to repurchase them a short time later

Front 17

Repos have little or no risk:

Back 17

1.Price risk
2.Credit risk
3.Liquidity risk

Front 18

Primary Dealers

Back 18

Domestic and foreign b/d m commercial banks and govt securities trust account authorized to buy and sell govt securities directly w the FRB.
-In order to become a primary dealer in US govt securities, the firm must be 'rrecognized' as such by the FROMC

Front 19

Fed desk

Back 19

1.Deals with PRIMARY DEALERS in OPEN MARKET OPERATIONS

2.Deals w in the DEALERS AND INDIVIDUALS in the AUCTION

Front 20

Dutch auction

Back 20

The price of tbills is lowered until it meets a responsive bid and is sold

Front 21

Accrued interest on US govt bonds and nots

Back 21

1.Computed on the ACTUAL # of days in a month,up to but NOT including settlement date