Interest Rate Markets Quiz 3

Treasury notes are issued with terms to maturity of

,

or

weeks.

Tenders are lodge at

:

pm on each Wednesday, results are announced the same afternoon, and stock must be taken up the next business day.

The dominant investors in Treasury notes are

, which invest in them to meet asset requirements agreed between the banks and the

and for liquidity management purposes.

Treasury notes are sold on a

, and are heavily traded between

and other financial institutions on the secondary market.

A bill of exchange is

instrument which is sold at a

to its face value. Its term can vary from

to

.

The main use of bills of exchange in Australia is as a means of obtaining

, but not necessarily related to specific trading transactions. Bills not related to trade transactions are called '

' bills.

The parties in a bank-accepted bill of exchange are the

,

and

.

Promissory notes differ from bills of exchange in that there is no

and they are marketable without

.

The are only two parties: the

(borrower) and the

(creditor).

Advantages:

* No

as FRAs do not go through a futures exchange there is not requirement for margin deposits or margin variation calls, so there is a corresponding savings in administration costs and in the costs of financing deposit and margin calls.

*

whereas futures contracts are standardized as to amount, settlement day, etc., FRAs are ________ and can be negotiated to fit precisely the hedging needs. However, the time limit period is limited to

years maximum.

* Limited

the institutions exposure to _____ ____ is limited to the interest variation based on the principal and is not the full principal amount.

*

-

the FRA is settled by exchange of a cash sum and consequently does not gross up the balance sheet.

Disadvantages:

* there is no formal

in which FRAs can be

* FRAs carry the

of the counter party.

Interest Rate Markets Quiz 4