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What is meant by T bills and how transactions are made of T bills

Tags: money, real estate, education
Asked by sujit kulkarni, 08 May '10 12:48 pm
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A T-bill is short-term debt of the federal government with a maturity of 13 weeks, 26 weeks, or one year. T-bills do not pay interest but are bought and sold for less than face value and then redeemed at maturity at face value. Thus, if one buys a six-month T-bill with a face value of $10,000 for $9500, the effective interest rate is about 10% per year. The price of T-bills is determined by bids that buyers submit; the Treasury fills the highest bids first, and continues filling orders until its offering is sold out. The Treasury sells T-bills each week, but most of the proceeds are used to pay off the T-bills that are maturing.Although some individuals buy T-bills, (you can buy one from any Federal Reserve Bank without any service charge--the Fed acts as a broker for the Treasury), most T-bills are bought by financial intermediaries, large companies, and governmental units.
Answered by beena john, 08 May '10 12:54 pm

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