TAILIEUCHUNG - A Primer on Government Securities Market - RESERVE BANK OF INDIA

One of the key economic functions of credit institutions is to convert short- term deposits into long-term loans. Depending on the scale of this maturity transformation – which essentially determines the risk arising from a bank’s balance sheet structure – sharply fl uctuating market interest rates can have a considerable impact on banks’ earnings and on their capital base. The increas- ing complexity of markets makes effective processes for measuring and man- aging interest rate exposure an essential business requirement for credit insti- tutions. The fi rst challenge in this respect is to choose the right instruments from among the wide variety that is. | A Primer on Government Securities Market RESERVE BANK OF INDIA Internal Debt Management Department Mumbai September 2008 Disclaimer The contents of this primer are for general information and guidance purpose only. The Reserve Bank will not be held responsible for actions taken and or decisions made on the basis of the same. Readers are advised to refer to specific circulars issued by Reserve Bank from time to time. While every effort has been made to ensure that the information set out in this document is accurate the Reserve Bank does not accept any liability for any action taken or reliance placed on any part or all of the information in this document or for any error in or omission from this document. 2 __C o n t e n t s__ Sl. No Question 1 What is the need for investment in Government securities 2 What is a Government security 3 How are the Government securities issued 4 What are the different types of auctions used for issue of securities 5 How and in what form can Government securities be held 6 How does the trading in Government securities take place 7 Who are the major players in the Government securities market 8 Whether RBI has prescribed Do s and Don ts for Cooperative banks dealing in Government securities 9 How are the dealing transactions recorded by the dealing desk 10 What are the important considerations while undertaking security transactions 11 Why does the price of Government security change 12 How does one ascertain the price of a Government security 13 How are the Government securities transactions reported 14 How do the Government securities transactions settle 15 What is the role of the Clearing Corporation of India Limited CCIL 16 What is the When Issued market 17 What are the basic mathematical concepts one should know for calculations involved in bond prices and yields 18 What is the relationship between yield and price of a bond 19 How is the yield of a bond calculated 20 What are the day

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