how governement manages liqudity in a nation?
DESCRIPTION
This slideshare provides you insights about relationship between monetary policy and fiscal policy and finally the overall impact on the liquidity of the nation. Furthermore, it deals with how the central bank uses treasury bills tools to manage liquidity of the country.TRANSCRIPT
Co-ordination between
Fiscal Policy Monetary Policy&
Liquidity Management
in
Presented By:
March 5, 2014
Himalaya Ban
of Nepal
1-16
Individual Vs Government Budget
Vs
2-16
Individual
Estimation of Expenses
Earn
Government Estimation of Expenses
Earning Sources
Individual Budget
Government Budget
3-16
Summary of Income and Expenditure
Revenue 216644355
Total Expenditure 337900000
Surplus (+) Deficit (-) (121255645)
Foreign Grant 65344230
Surplus (+) Deficit () ( 55911415 )
Foreign Loan 22231415
Domestic Borrowing 33680000
Why Government issues securities?
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Types of Government securities
Short term security: T-bill
Long term securities
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Short term Government securities issued by NRB
Treasury Bill (T-bill)
The primary purpose of issuing T-bill is to make fund available to government whereas secondary purpose is to manage liquidity in market.
Treasury bill is a short-dated government security, yielding no interest but issued at a discount on its redemption price.
Maturity period of Treasury bill are 28 days, 91 days, 182 days and 364 days in context of Nepal.
Among them 91 days T-bill is very famous in Nepalese Market. NRB issued T-bill on every Monday and made allotment in Tuesday. There is proper bidding mechanism in NRB
1. Repo2. Reverse Repo3. Outright Purchase4. Outright sale
Secondary transaction of T-bills
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Repo: Repurchase Agreement
Loan (Cash)
T-Bills
NRB
Opening Leg
A Repo is a sale of securities coupled with an agreement to repurchase the same securities at a higher price on a later date.
It arranged for short period, typically ranging from overnight to 4 weeks. The ownership of securities is not transferred It is designed to inject liquidity
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T-Bills
Loan + Interest
NRB
Closing Leg
Repo: Repurchase Agreement
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Unissued T-Bills
Cash (Loan)
NRB
Opening Leg
Reverse Repo Under Reverse Repo NRB borrows from the Commercial
banks with the objective of moping –up excess liquidity from the system.
It is designed to withdrawal liquidity.
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T-Bills
NRB
Closing Leg
Reverse Repo
Loan + Interest
10-16
Outright purchase
Cash
T-Bills
NRB
11-16
UnissuedT-Bills
Cash
NRB
Outright Sale
12-16
Standing Liquidity Facility (SLF)
COMMERCIAL BANKS
NRB
T-Bill, Bond as Collateral
Short Term Loan
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• SLF rate is determined through weighted average of 91 days T-Bill + 3% panel rate determined by OMOC
• NRB always tries to promote that liquidity problems be solved within the commercial banks.
• NRB stands as lender of last resort and SLF is used by NRB as solution for short term remedy only
• Thus to penalize the bank, it charges extra 3% as penalty rate.
14-16
• The primary purpose of issuing the T-Bills is to implement the fiscal policy.
• The Secondary purpose is to implement the monetary policy.
• Two types of bond short term and long term.
• The different type of instrument were used by NRB to maintain the liquidity in the market.
Conclusion
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