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Consider the following statements with reference to Cash Management Bills (CMBs):
It is a long-term instrument issued by the RBI to meet mismatches in the cash flow of the Government.
It is also reckoned as an eligible investment in G-Secs by banks for statutory liquidity ratio purposes.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements with reference to Cash Management B...
Explanation:
Statement 1:
- Cash Management Bills (CMBs) are short-term instruments issued by the RBI to help the Government manage its short-term cash flows efficiently.
- These bills are usually issued for a maturity period of 91 days or less, making them a short-term rather than a long-term instrument.
- Therefore, the statement that CMBs are a long-term instrument is incorrect.
Statement 2:
- CMBs are considered as an eligible investment in Government Securities (G-Secs) by banks for statutory liquidity ratio (SLR) purposes.
- Banks are required to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of SLR securities, which include instruments like G-Secs.
- Since CMBs are issued by the Government and are short-term in nature, they are included in the list of eligible investments for banks to meet their SLR requirements.
- Therefore, the statement that CMBs are reckoned as an eligible investment in G-Secs by banks for SLR purposes is correct.
Conclusion:
- Based on the explanation provided above, it can be concluded that statement 2 is correct, while statement 1 is incorrect.
- Hence, the correct answer is option 'B' - 2 only.
Statement 1:
- Cash Management Bills (CMBs) are short-term instruments issued by the RBI to help the Government manage its short-term cash flows efficiently.
- These bills are usually issued for a maturity period of 91 days or less, making them a short-term rather than a long-term instrument.
- Therefore, the statement that CMBs are a long-term instrument is incorrect.
Statement 2:
- CMBs are considered as an eligible investment in Government Securities (G-Secs) by banks for statutory liquidity ratio (SLR) purposes.
- Banks are required to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of SLR securities, which include instruments like G-Secs.
- Since CMBs are issued by the Government and are short-term in nature, they are included in the list of eligible investments for banks to meet their SLR requirements.
- Therefore, the statement that CMBs are reckoned as an eligible investment in G-Secs by banks for SLR purposes is correct.
Conclusion:
- Based on the explanation provided above, it can be concluded that statement 2 is correct, while statement 1 is incorrect.
- Hence, the correct answer is option 'B' - 2 only.
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Community Answer
Consider the following statements with reference to Cash Management B...
- Cash Management Bills (CMBs) are short term bills issued by central government to meet its immediate cash needs. The bills are issued by the RBI on behalf of the government. Hence the CMBs are short- term money market instruments that help the government to meet its temporary cash flow mismatches. Hence, statement 1 is not correct.
- Following are the features of CMBs:
- CMBs have a maturity of less than 91 days.
- The CMBs have the generic character of Treasury Bills as the CMBs are issued at a discount and redeemed at face value at maturity.
- CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949. Hence, statement 2 is correct.
- CMBs were issued for the first time in 2010. The purpose of the mechanism is to enable the government to get short term money. Another similar method for the government to get short term money is Ways and Means Advances (WMA). Under WMA, the RBI gives temporary loan facilities to the centre and state governments as a banker to the government for up to 90 days.
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Consider the following statements with reference to Cash Management Bills (CMBs): It is a long-term instrument issued by the RBI to meet mismatches in the cash flow of the Government. It is also reckoned as an eligible investment in G-Secs by banks for statutory liquidity ratio purposes. Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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