Finance Of The Public Debt

Financial Instruments A financial asset is something which is defined as an entitlement of future cash flows. However, a financial instrument is a broader term used to describe financial assets and other assets in which there are no organised secondary markets to trade them. However, a financial security is something that can be traded in a secondary market. Attributes of Financial Assets Financial assets are those that: • • • • Have a return of yield expressed in terms of percentage. Have risk in which there is probability the actual return will differ from the expected return. Are liquid in that they can be sold at current market prices with reasonable transaction costs. Are expected to have a set time-pattern of cash flows in or out.

3. Bliss, Robert R., and Ehud I. Ronn. "Callable U.S. Treasury Bonds: Optimal Calls,        Anomalies, and Implied Volatilities." The Journal of Business 71.2 (1998): 211-52. Web.

Moderate risk. Purchasing a bond means giving a loan to a company. “T-Bonds” are bonds issued by the U.S. Treasury and are safer than corporate bonds. (Loaning money to the government is safer than loaning money to a private business.)

The Federal Reserve plays a vital role as the intermediary in clearing and settling interbank payments to assure that the millions of transactions performed each day are processed safely and efficiently. Acting as the “Banker’s Bank”, the Federal Reserve Banks provide various services to the nation’s banks such as check processing, electronic transfers, and ensuring there is enough cash in circulation to meet public demand. As fiscal agent for the U.S. government, the Reserve Banks pay Treasury checks and issue, transfer, and redeem U.S. government

1. Before maturity, a bond may be selling at the face value or at a price greater or lesser than the face value.The terms “premium” and “discount” refer to the difference that exists from the face value of the bond. Bonds selling at a price greater than the face value are said to be at a premium and the bonds selling at a price lesser than the face value are said to be at a discount.

The Federal Reserve Board is a regulating body that determines how United States will lend money by coordinating the banks and defining the value of the dollar. A Governor on the Federal Reserve board communicates with the twelve region 's bank presidents, economic analysts, and their regional directors, and collectively define the dollar by selling long-term and short-term bonds that advance a percentage of the worth. Once an agreement has been made upon fraction percentage, banks are required to maintain that stated amount in a Federal Reserve vault, or the bank’s vault. The Federal Reserve loans temporary funds to the banks that do not meet the reserve requirement in the form of a short term loan, usually overnight. A large amount of the Federal Reserve Board’s time is spent discussing fractions of a percent on specific money-related rates which steers the economy.

Debt securities included under this topic include any investment that would be considered a loan to a company, municipality or the government and its agencies. These include corporate or municipal bonds and U.S. Treasury securities and other instruments expressly stated within the codification. Equity securities covered under this section must have an easily attainable market value and include corporate stock, U.S. Treasury securities, and business investments greater than 20%. In this case, the code will dictate the method of accounting to be used as well as financial statement presentation. (GAAP) (FASB ASC 320-10-05-2, 2016).

When discussing various issues affecting the federal government, transparency issues have to be put on the front line because the Federal Reserve’s should have one of the most transparent systems. The Federal Reserve transparency act was formulated in order to ensure that there is transparency in the federal reserves through making the federal government publicize most of the financial institutions that it offers loans to and the organizations which use the open market operations in order to purchase bonds. It’s more likely to embarrass the central bank in the exposure of the federal transactions and that can lead to political pressure in the congress. This study is aimed towards exploring the issue of auditing the federal reserves or

Prior to the institution of the Federal Reserve Act, the U.S. financial system’s basic structure was determined by the National Banking Acts of 1863, 1864, and 1865 (Broz, 1999). The purpose of the legislation was to provide a uniform national currency and to raise revenue for the federal government during wartime (Broz, 1999). While effective in its main purposes, it was flawed in the fact that the increase of available currency had little to no effect on consumer demand which led to large seasonal swings in interest rates and banking panics (Friedman & Schwartz, 168-169). In an attempt to rectify the shortcomings of the National Banking System, government turned to the New York Clearinghouse Association, purportedly known as the first central bank. Originally responsible for the settlement of payments between financial institutions, it was chosen because it was the only source at the time that had the ability to provide funds during high demand periods through a discount window or an open market operation (Broz, 1999). In the end, it failed to maintain an adequate amount of liquid reserves to counteract the monetary crisis‘s that ensued during the agricultural harvest cycles, when currency demands accelerated.

They must purchase capital stock in their District Reserve Bank, entitling them to a six percent stock dividend, thus issuing them the right to vote for six of the nine Directors of that District Bank. Within this structure there was the Monetary Control Act of 1980 which imposed a reserve requirement on all depository institutions, which allows them to borrow and receive other services from the Fed. This remains beneficial because by enabling banks to borrow reserves from the Reserve Banks the liquidity of the entire banking system is increased.

The commercial and cooperative banks use T-Bills for fulfilling their SLR requirements. Advantages of Treasury Bills Objective of issuing T-Bills is to fulfill the short term money borrowing needs of the government. T-bills have an advantage over the other bills such as: Zero Risk weightage associated with them. They are issued by the government and sovereign papers have zero risk assigned to them High liquidity because 91 days and 364 days are short term maturity. Transparency The secondary market of T-Bills is very active so they have a higher degree of tradability. Treasury Bills are issued only by the central government in India. The State governments do not issue any treasury bills. Interest on the treasury bills is determined by market forces. Treasury bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000 There are no treasury bills issued by State

Before any of the risky moneymaking endeavors, investors traditionally would have gone to the US Federal Reserve to buy treasury bills, a safe and profitable investment. Later, when interest rates were lowered to only 1% in

The above links address some of these issues. In other words, the bond market is a market in which the bonds of corporations and governments are traded (i.e., banks, etc.) and transacted in various settings (i.e., banks, private sectors, government agencies) and in various ways (i.e, over the counter, electronically, telephone, etc.) www.econ100.com/eu5e/open/glossary.html.

According to FASB, securities can be divided into three categories: trading securities, available-for-sale securities, and held-to-maturity securities. Since most of investors will not hold Bitcoin for a long time, we might classify it as either trading securities or available-for-sale securities based on how long investors will hold the coin.

A financial intermediary, by definition, is responsible for the process of transferring money from economic agents with a surplus of funds to economic agents with a deficit of funds, and is known as financial intermediation. This is achieved by means of a financial security, such as stocks and bonds. The mechanism that allows the trade of such financial securities is known as a financial market. Financial markets aim to facilitate the raising of capital, as well as the transfer of risk between economic agents and also international trade. Typically, the borrower will issue a receipt, or financial security, to the lender that promises to pay back the capital gained. Securities such as these can be freely bought or sold within financial