MONEY AND BAKING ASSIGNMENT

Treasury Bills
BSBA 6(A)

Submitted by:

Ammara Zamurad 04151613009

Maheen Adil 04151613092
Maryam Javed 04151613093
Sumaira Umer 04151613080
Submitted to:
Sir Mubashahid Ali Shah

Quaid-i-Azam School of Management Sciences

Quaid-I-Azam University,
Islamabad
Contents
TREASURY BILLS ............................................................................................................................................ 3
1. Introduction ...................................................................................................................................... 3
2. Issue Procedure................................................................................................................................. 3
3. Investment Procedure ...................................................................................................................... 3
 IPS Account ................................................................................................................................... 3
 Opening an IPS Account ................................................................................................................ 3
4. Buying the Treasury Bills ................................................................................................................... 3
 Non-Competitive Bidding .............................................................................................................. 3
 Competitive Bidding ...................................................................................................................... 3
5. Procedure for Foreign Investors ....................................................................................................... 4
6. Redemption....................................................................................................................................... 4
7. IOU .................................................................................................................................................... 4
8. Distinguishing Features of T-Bills ...................................................................................................... 4
 Risk Free ........................................................................................................................................ 4
 High Return ................................................................................................................................... 4
 Liquidity......................................................................................................................................... 4
 Collateral ....................................................................................................................................... 4
References .................................................................................................................................................... 5
 TREASURY BILLS
1. Introduction
Treasury bills also called T-bills are short term money market securities or debt securities issued by the
government of any state to meet the short-term expenses or deficits. Treasury bills are money market
securities which means they’re issued for or less than a year. Unlike other bonds and debt securities,
treasury bills are not issued on interest. T-bills are issued at discount.

2. Issue Procedure
In Pakistan the State Bank of Pakistan also known as SBP is responsible for issuing treasury bills. State bank
issues treasury bills for periods of 3,6 or 12 months. Treasury bills are issued in multiples of PKR 5000 in
Pakistan. Regular auctions of treasury bills are held on fortnightly basis. The auctions can be found out on
the official website of SBP.

3. Investment Procedure
 IPS Account
The investor portfolio of securities account is mandatory for investing in the treasury market securities.
The commercial banks are the primary dealers in this regard, because they hold the Market Treasury Bills
of MTB’s in the IPS account. Commercial banks hold the securities on behalf of their customers. However,
the actual owner of the securities is the customer.

 Opening an IPS Account

Any person who has a minimum amount required to buy treasury bills in his account is entitled to have
an IPS account. The commercial banks are required to offer an IPS account every year to all the customers
who have enough savings to invest in the T-bills. Investors are advised to contact the treasury
departments of the respective commercial banks for detailed guidelines.

4. Buying the Treasury Bills

Once the IPS account is opened, the investor can instruct the banks to buy treasury bills either from the
primary market or the secondary market. You can purchase T-bills by either competitive or non-
competitive bidding.

 Non-Competitive Bidding
This is the simplest form of bidding usually used by those investors who have a limited knowledge about
securities. In non-competitive bidding, you agree to whatever discount rate will be paid back to you.
However, you’re guaranteed that your complete bid price will be paid back to you. In other words. You’re
not certain how much return you’ll get but you’re assured that the entire invested amount will be paid
back to you. Moreover, you’ll also certain that your bid will be accepted.

 Competitive Bidding
Competitive bidding is followed by corporations or those investors who’re expert in the trade of securities.
In competitive biding you specify the minimum discount rate you want to receive. If the selected bid rate
falls below or equal to the rate you specified, your bid is accepted and if the selected rate is higher than
specified rate, then your bid will be rejected. If your bid was lower then the selected bid rate, even then
you’ll receive the higher selected rate. For example, if your bid was 1.2% and the selected rate was 1.5%,
you’ll still get 1.5%. However, in the same scenario, if your bid was higher than 1.6%, your bid will be
rejected.

The rate that bidders receive if their bid is accepted is called the Highest accepted yield. The selected
discount rate is the average of all the competitive bids, and it is the same rate that the non-competitive
bidders receive. Competitive bids can only be made via banks or brokers. Whereas, the individual investor
can make non-competitive bids himself.

5. Procedure for Foreign Investors

Foreign investors can also invest in treasury bills by opening an IPS account. The foreign investors must
open a Special Convertible Rupee Account (SCRA) with an authorized dealer. Foreigners open the SCRA in
Pakistani rupees and the foreign currency is credited to their Pakistani account after being converted into
PKR.

6. Redemption
Treasury bills cannot be redeemed before maturity. However, you can trade your T-bills in the secondary
market. If you hold it till maturity, the money equal to the face value of the treasury bill will be credited
to your bank account. It is notable here that when you purchased the treasury bills, you paid an amount
less than the printed face value. For example, a treasury bill having face value of PKR 1000 was sold to you
at an amount PKR 980. However, when the maturity date comes, you receive an amount higher than that
you paid for. This initial discount in the purchase price is called discount rate. Treasury bills are issued at
discount rate instead of interest rate. This discount rate is the return on treasury bills.

7. IOU
At the purchase of treasury bills, the government issues an IOU meaning I owe you certificate to the holder
of the security.

8. Distinguishing Features of T-Bills

 Risk Free
T-bills are considered risk free securities as they’re issued by the government and there are absolutely no
chances that the government will default.

 High Return
T-Bills have comparatively high return than the money market securities issued by commercial banks.

 Liquidity
T-bills are very liquid debt securities and they can be easily traded in the secondary market.

 Collateral
In many cases, T-bills serve as collateral. As they’re risk free securities, they can be considered almost as
liquid as cash and cash equivalents.
 References

https://money.howstuffworks.com/personal-finance/financial-planning/treasury-bills2.htm
http://www.sbp.org.pk/dmmd/Guidelines/MTB.pdf
https://www.investopedia.com/terms/t/treasurybill.asp