Bills – Treasury bills, commercial bills, and banker’s acceptances
Bills are short-term debt instruments that are issued to raise funds for short-term borrowing needs. They typically mature in less than one year, ranging from a few days to several months. Bills are usually issued by government or businesses.
For example, a business may issue a commercial bill for $100,000 to raise capital for their operations. The bill may have a maturity period of 90 days, which means that the issuer must repay the full amount plus interest within that time frame.
During its lifespan, several events can occur with a bill. The issuer may choose to repay the bill early, or the holder may sell the bill to another party before it matures. In some cases, the issuer may default on the bill and be unable to repay the full amount owed.
There are different types of bills, including Treasury bills, commercial bills, and banker’s acceptances. Treasury bills are issued by the government, commercial bills are issued by businesses, and banker’s acceptances are issued by banks to finance international trade transactions.
Payments made during the life cycle of a bill may include interest payments, principal payments, and fees for late payments or prepayment. The payment schedule and terms are typically outlined in the bill itself.
Swift messages may be used for confirmation and settlement of bills in certain cases, but this varies depending on the specifics of the transaction. For example, banker’s acceptances are often settled through the use of swift messages.
The valuation of a bill is based on the total amount owed, including any interest or fees. The value of a bill may also be impacted by market conditions and changes in interest rates.
Treasury bills, also known as T-bills, are issued by the government to raise funds for short-term borrowing needs. They are typically issued with maturities of 4, 13, 26, or 52 weeks and are sold at a discount to their face value. When a T-bill matures, the government pays the holder the full face value of the bill, and the difference between the purchase price and the face value is the investor’s profit. T-bills are considered to be a low-risk investment because they are backed by the full faith and credit of the government.
Commercial bills, also known as promissory notes or trade bills, are issued by businesses to raise capital for their operations. They typically have maturities ranging from 30 to 180 days and may be issued with a fixed or floating interest rate. Commercial bills are often used to finance the purchase of inventory or equipment, or to cover short-term cash flow needs. Investors in commercial bills are typically other businesses or financial institutions.
Banker’s acceptances, or BA’s, are short-term debt instruments used to finance international trade transactions. They are typically issued by banks and are backed by the creditworthiness of the bank. When a business wants to import goods from another country, they may use a BA to guarantee payment to the exporter. The BA acts as a promise from the bank to pay the exporter the full amount owed when the BA matures. BA’s typically have maturities ranging from 30 to 180 days and may be traded on secondary markets.
During their lifespan, events that can occur with all types of bills include early repayment, sale to another party, or default by the issuer. Payments made during the life cycle of bills may include interest payments, principal payments, and fees for late payments or prepayment.