Ways and means advances, Financial Management

WAYS AND MEANS ADVANCES (WMAs)

WMA is not a permanent source of financing government deficit. But, this is likely to provide greater autonomy to the RBI in conducting monetary policy. According to the agreement, the RBI will no longer monetize the fiscal deficit and the government should borrow from the market to finance the fiscal deficit. But, the RBI will extend the advances to the Central and State governments to tide over temporary or short-term finance requirements which needs to be repaid in three months. Drawals in excess of the WMAs limit will be allowed for a maximum of ten consecutive days. The RBI allows for three types of ways and means advances: the clean WMAs (unsecured), the secured WMAs (which are secured against central government securities) and the special WMAs which are allowed in exceptional circumstances against the pledge of government securities.

The system of WMAs broadly works as follows:

  • The limit of WMAs is decided in terms of mutual consultations between the RBI and the central government.
  • The interest charged up to the WMAs limit would be three percent less than the average implicit yield at the cut-off prices of 91-day T-bills in the previous quarter and for the amount in excess of WMAs limit, it is two percent more than the normal rate.
  • The interest rate is decided on, and can be altered by mutual agreement between the RBI and the government.

The outstanding balance of WMAs at the end of the year should be repaid by the central government (it should be brought down to zero). If the balance remains unpaid for more than two weeks after the end of year, the RBI converts the amount into dated securities at the market rate of interest.

If 75 percent of limit is utilized, the RBI should initiate a fresh flotation of central government securities.

 

Posted Date: 9/11/2012 3:46:31 AM | Location : United States







Related Discussions:- Ways and means advances, Assignment Help, Ask Question on Ways and means advances, Get Answer, Expert's Help, Ways and means advances Discussions

Write discussion on Ways and means advances
Your posts are moderated
Related Questions
Question: Explain: (a) the advantages and disadvantages, to a company, of debt finance over equity finance; (b) the reasons why a company may choose to issue preference s

A trade is assessed on the basis of its performance. Performance can be defined as the expected total return over and above the investment horizon of the trade. T

NPV and Other Criteria Waddington International Inc. has $20 million to invest. It is considering whether to build a new factory in Western Canada. The land and the building wil

What are some of the government requirements imposed on a public corporation that are not imposed on a private, closely held corporation? Public corporations ought to tender au

As liberalization is gathering momentum, corporate treasures and merchant bankers are in the process of devising new products to suit the needs of investors and c

Q. What do you understand by Business cycle? Business cycle: business cycle refers to the alternate expansion and contraction in the general business activity. in a period of t

Public Financial Statements of a Company The final exercise is the valuation of a publicly held company's equity. You must base your valuation on the company's public financia

Extendible reset bonds are floaters in which the issuer is required to reset the coupon rate so that the issue will trade at a predetermined price (usually above

Q. Illustrate the Nature of Financial Management? Less Descriptive as well as More Analytical: - Financial management is less descriptive and more analytical. Because of the

Explain in detail various sources of finance. Which is the most appropriate one?