✓ bids made in terms of yield to maturity up to 3 decimal places - not in terms of
price
✓ bids accepted in ascending order of yield, i.e., lowest-yield bid (highest price) first,
until issue fully subscribed
✓ settlement is via Austraclear
crowding-out effect - correct answer-• govt demand for debt financing reduces amts
of funds available for investment in private sector
(A rise in interest rates and a resulting decrease in planned investment caused by
the federal government's increased borrowing to finance budget deficits and
refinance debt.)
• minimized in times of strong fiscal management i.e. budget surplus
Exchange Settlement Accounts - correct answer-• A special a/c held with the RBA to
facilitate the settlement of value transactions within the payment system.
✓ held by banks, special service providers (building societies and credit unions) and
other providers of payments services.
• exchange settlement a/c transactions use same-day fund, i.e. funds not requiring
clearing through the payments system.
, fiscal policy - correct answer-- it related to the annual incomes and expenditures of a
govt.
- Government policy that attempts to manage the economy by controlling taxing and
spending.
individuals and institutions may participate in the secondary market for the following
reasons: - correct answer- ✔️ funding reqs
✔️ liquidity needs
✔️ reserve reqs
✔️ interest rate expectations
✔️ to maintain the maturity profile of a bond portfolio
instruments issued by the Govt - correct answer-Treasury bonds - mainly bought by
commercial banks, other financial institutions and portfolio managers.
issues of security by govt - correct answer-• long-dated bonds are now issued every
2 yrs, ensuring sufficient securities to support 10-yr bond futures contracts
• govt intends to issue about $5 billion of T-bonds each yr to ensure a deep and
liquid market
main features of T-bonds - correct answer-• coupon instrument (fixed coupons
normally paid each each 6 months/ semi-annual)
• coupon payment = coupon rate ✖️ face value of bond
• face value of bond redeemed at maturity date or may be sold in secondary market
for early redemption.
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