REACTION: A held to maturity investment is the investment made by a company which it intends to hold till maturity while it has

the capacity to honor such intention. Only debt securities can be classified as held to maturity because they have a definite maturity. Equity securities on the other hand have no maturity and hence they cannot be classified as held to maturity. In our group's opinion, we agree on what the Reserve an! of India did. "e are not

against on reducing the requirement of holding held#to#maturity $%&'( category bonds in the statutory liquidity ratio $)*R( portfolio for the ban!s to +, per cent from the e-isting +. per cent. A cut in %&' # which is a type of debt that ban!s must be hold till maturity # is aimed at spurring ban!s to lend more and boost a sluggish economy poised to grow at its slowest pace in a decade. &raders have said a reduction in the %&' limit could hit bond prices, given debt supply would increase as ban!s would be allowed to sell some of their tied#up securities. "e believe that by decreasing statutory liquidity ratio, the R I will imrove credit flow to private companies. 'aybe, because of this, it will adversely impact fiscal deficit, but it is more advantageous for the reason that it will control the e-pansion of ban! credit. &he R I focus should be to boost the participation of the private sector by providing ready access to debt finace instead of redistributing liquidity artificially in favor of the government sector. Another thing is that, by decreasing the )*R, it will ensure the solvency of commercial ban!s and to compel those commercial ban!s to invest in government securities li!e government bonds. /ompliance with )*R targets compels ban!s to invest in governement bonds, rather than allowing demand and prices of such securities to be determined by mar!et forces. "e also believe that, higher )*R increases mar!et ris!s for ban!s due to the sheer of si0e of holdings of price sensitive securities. In conclusion for this, the group thought that this restriction is imposed by R I on ban!s to ma!e funds available to customers on demand as soon as possible. &he R I as e-pected has highlighted the downside ris!s to growth. ut unless the currency stabilises they will not bring bac! growth on their radar and that is going to be a very gradual process. APPLICATION: As for the !nowledge of the group, the fair value of a bond changes when mar!et interest rates change. If mar!et rates of interest rise after a fi-ed#rate security is purchased, the value of the fi-ed#interest payments declines. )o, the fair value of the investment falls. /onversely, if mar!et rates of interest fall after a fi-ed#rate security is purchased, the fi-ed interest payments

become relatively more attractive, so the fair value of the investment rises. Increases and decreases in fair value between the day a debt security is acquired and the day it matures to a prearranged maturity value are less important if sale before maturity isn't an alternative. 1or this reason, if an investor has the positive intent and ability to hold the securities to maturity, investments in debt securities can be classified as held#to#maturity $%&'( and reported at their amorti0ed cost in the balance sheet. A debt security cannot be classified as held# to#maturity if the investor might sell it before maturity in response to changes in mar!et prices or interest rates, to meet the investor's liquidity needs, or similar factors. As fi-ed#income items, held#to#maturity securities are not susceptible to mar!et price fluctuations as returns are loc!ed#in at the time of purchase. In other words, though the mar!et value of the security held may fluctuate, the returns will not since the holder intends to hold the bond until maturity, benefiting from the interest returns.