Short term securities and

transactions
Presentation
To Class
03 rd May ’ 2008

By : Irfan Siddiqui

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 Key terms
• Before starting our presentation on short term
securities and its transactions , lets have a look on
key terms used in treasury department one by one.

Price : - Price in economics and business is the

assigned numerical monetary value of a good,
service or asset. The concept of price is central to
microeconomics.

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 Key terms

Rate : - In finance, rate of return (ROR) or

return on investment (ROI), or sometimes
just return, is the ratio of money gained or
lost on an relative investment. By
pronouncing rate in financial market it
means simple interest rate of lending/
investment or borrowing / deposits and
other liabilities.
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 Difference between Price and Rate
Price is the assigned Rate is the set interest
numerical monetary value on given principal either
Through lending ,
of assets like, T- bills,
borrowing , or investment
PIBs and TFCS. or selling of products and
opportunity, in other words
it in cashes the time value
of money

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Difference between Price and Rate
Price could be derived
from rate.
Some substance , physical
asset is required for pricing
Rate is initiated at first
place through which
compatible price is derived.
Rate is initiated for assets
as well as used for other
form of transactions like
call, clean , TDR, COI,
Coupons and etc.
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 Difference between Price and Rate
Price could be at par = 100,
at premium = (par +) like
100.0199…. , at discount =
(par -) like = 99.9999.
Price can not be used for
clean, call, COI, TDR tran-
sactions.
Rate is a rate , not on par
, below par or at premium
but rate being the initiative
element could drive these
different prices.
Rate is used for clean,
call, COI and TDR
transactions.
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Difference between Price and Rate
Price can not be used Rate is used for determining
KIBOR , Discount Rate and
for KIBOR , Discount
Coupons of different
rate , Coupons of PIBs instruments.
and TFCs.
In Equity Price index • Rate is not used for share
shows the value of Valuation.

shares

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Difference between Price and Rate
Price goes up when Rate goes down when value
of assets appreciated.
value of assets
appreciated
Every price could be Not every rate could be
driven to get price , for example
driven to get rate call, clean , TDR and COI
Transactions.

Rule of Thumb : Price and rate are

inversely proportion to each other
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 Treasury Bills
The Most popular instrument used for short term
borrowing is government security that is T- bills.
Features
 Most liquid security
 100% SLR qualified ( it means if SLR requirement is Rs
200,000,000 and your bank has unencumbered T- bills of
Rs 200,000,000 your SLR requirement is full filled. ( un
encumbered means securities available for SLR purpose
that is not involved in REPO or would be sold out without
replacement)

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 Treasury Bills
Features
 Discounted issue and Zero coupon based
traded at reval rate and not at par.
 Available after every 14 days through
auction from primary source and all the
time in secondary market.

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 Treasury Bills
Calculation : Rate to Price
Let : Your bank has purchased T- bills @
10.2418% , issue 08-05-2008 , 01 year ,
RDM = 354 days.
Now , if your bank has purchased Rs
400,000,000 /- under outright transaction,
what would be the price of rate 10.2418%?
And why price is so important to know ….?
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 Treasury Bills
Calculation : Rate to Price
Why price…………….?
Because , to find out exact cheque amount
of T-bill (which is not purchased at par but
at discount) we need to know purchasing
price .
Formula = (RDM x Rate / 36500) + 1
= = Product 01
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 Treasury Bills
Calculation : Rate to Price
First Price = 100 / Product 01

Now by putting the values in formula , we

will get
P 1 = (354 x 10.2418/36500) + 1
= 1.09933143013
First Price = 100 / 1.09933143013
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 Treasury Bills
Calculation : Rate to Price
First Price = 100 / 1.09933143013
= 90.9644
Golden Rules of calculation
 Always put full digits numerical figure of P1
that is for example 1.09944881371
 Never put prices more that 4 decimals that is
for example 91.9433 (exact 4 decimals are
required)

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 Treasury Bills
Calculation : Rate to Price
So till now we have driven First Price
= 90.9644
Now, what would be the cheque amount on purchase
of Rs 400,000,000/- T- bill that will be …
(400,000,000 x 90.9644 / 100)
= Rs 363,857,600.
This means that for purchase of T- bills of Rs
400,000,000/- buyer will only pay cheque amount
equal to Rs 363,857,600/- that is why it is called a
discounted issue.

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 Treasury Bills
Calculation : Price to Yield

So far we studied how to calculate price from

yield but what if price is given and you
have to take out yield for it……..!
 This may happen when you want to
calculate exact premium or discount value
of issue.
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 Treasury Bills
Calculation : Price to Yield

Formula : Rate =
{(100 – First Price) / First Price } x 365 x 100
RDM

{100 – 90.9644 / 90.9644 } x 365 x 100

354
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 Treasury Bills
Calculation : Price to Yield

Formula : Rate =

0.09933116691 x 365 x 100 = 10.2418%

354

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 Treasury Bills
Calculation : Price to Yield
Rate = 10.2418%
Now if go to slide number one we will see that 10.2418% was the rate for which
we had driven price of Rs 90.9644.

Golden Rules of calculation

 Always put full digits numerical figure of P1 that is for
example 0.09933117781
 Never put rate more that 4 decimals that is for example
10.2417 % (exact 4 decimals are required)

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 Key terms to remember
Repo Transactions : Repo is a sale of
security with an agreement to Re purchase
of the same security with the specified rate
and tenor with the same counterparty.
Types of Repo
Basically in lay man’s language Repo is a borrowing
against Security , so it could be a government security or a
corporate security.

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 Key terms to remember
Repo Transactions

Govt. Securities

T - Bills PIBs Wapda

Bonds

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 Repo Transactions
T- bills
.
T- bills are the most commonly used instrument for
Repo transactions , we have already known how to
calculate an outright transaction and for that matter
we firstly drive First Price but in Repo transaction
we need not only First Price but also the second
price for maturity amount because unlike outright
purchase Repo transaction has two legs.

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 Repo Transactions
T- bills
.Calculation of Repo against T- bills
Formula :- (RDM x PKRV rate / 36500) + 1 = Product 1
First Price = 100 / P1
It is notable that T- bill outright and Repo first leg both have
the same formula , however in Repo as there is no decided
selling price because main motive is interest rate due to buy
back agreement , instead of buy rate we use reval rate of the
security which is called PKRV rate. Hence

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 Repo Transactions
T- bills
.Calculation of Repo against T- bills
Formula :- (RDM x PKRV rate / 36500) + 1 = Product 1
First Price = 100 / P1

2nd Price = P2 = {(Repo Rate/ 365 x Repo days} + First Price

2nd Price = P2 + First Price

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 Numerical
Q 1 : Calculate the following

a) T – bill purchase price if

Buy rate : 10.2412%
RDM : 364 days
issue date : 17-08-2008
Settlement date : 17-08-2008 , Price ?

b) Same issue , but settlement date 31-08-2008

RDM = 350 days
Buy rate : 10.2100%
Price ?

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 .

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