Certificate of deposits, Financial Management

Assignment Help:

A Certificate of Deposit (CD) can be defined as a negotiable promissory note, secure and short-term in nature. CDs are issued at a discount to the face value, the discount rate being negotiated between the issuer and the investor.

In India, Certificates of Deposits (CDs) were introduced in 1989 based on the Vaghul Committee recommendations. The introduction of CDs further widened the money market instruments giving the investors a greater flexibility to deploy short-term surplus funds. Certificates of Deposits are lowest risk category investment options and stand next to T-bills.

Scheduled commercial banks, and all selected FIs in India are permitted by the RBI to issue CDs for raising short-term resources. Regional Rural Banks (RRBs) and Local Area Banks (LABs) are excluded from issuing CDs. While banks have freedom to issue CDs depending on their requirement, FIs are allowed to issue CDs within the overall umbrella limit as fixed by the RBI from time to time. As per the RBI guidelines the issued CDs together with other instruments like term money, term deposits, commercial papers and inter-corporate deposits should not exceed 100 percent of its Net Owned Fund (NOF). The NOF is considered as per the latest audited balance sheet.

CDs can be issued to individuals, corporations, companies, trusts, funds, etc. NRIs can also subscribe to CDs, but on non-repatriable basis. This should be clearly stated on the certificate and it cannot be endorsed to another NRI in the secondary market. CDs may be issued at a discount on face value with the issuing bank/FI having the freedom to determine the discount/coupon rate. However, Banks/FIs are also allowed to issue CDs on floating rate basis.

The maturity period of CDs issued by banks should not be less than 7 days and not more than one year. FIs can issue CDs for a period not less than 1 year and not more than three years from the date of issue.

CDs are issued only in the dematerialized form. However, according to the Depositories Act, 1996, investors have the option to seek certificate in physical form. If an investor insists on physical certificate, the issuer should approach the RBI. The issuance of CDs will attract stamp duty. Physical CDs are freely transferable by endorsement and delivery while demat CDs are transferred as other demat securities. There is no lock-in period for the CDs.


Related Discussions:- Certificate of deposits

Stock price calculations, I need help working through this problem. What is...

I need help working through this problem. What is the stock price of Firm X when provided the following information? Beta – 1.42 MRP – 10% Rf – 3% G – 4% Dividend next period-

Explain compound value of an annuity, Q. Explain Compound Value of an Annui...

Q. Explain Compound Value of an Annuity? Compound Value of an Annuity: - Annuity demotes to the periodic flows of equal amounts. FV = A {(1+i)n - 1}/i Instance: - Mr. X i

Why depreciation play in estimating incremental cash flows, What role does ...

What role does depreciation play in estimating incremental cash flows? Depreciation expense is a tax deductible expense and thus affects cash flow through its effect on taxes.

prepare a cash budget, You are presented with the budgeted data shown belo...

You are presented with the budgeted data shown below for the period November 20X1 to June 20X2 by your firm. It has been extracted from the other functional budgets that have been

Eps, a. Calculate expected earnings per share (EPS) if the firm is perfectl...

a. Calculate expected earnings per share (EPS) if the firm is perfectly hedged. EPS $

Poultry broilers, discuss the applicability of operating cycle in poultry (...

discuss the applicability of operating cycle in poultry (consider broilers)

Operating cycle, discuss the applicability ofan operating cycle in a poultr...

discuss the applicability ofan operating cycle in a poultry business(broilers)

NPV, 2.5. Västerås Corporation plans to buy a truck for $40,000 and depreci...

2.5. Västerås Corporation plans to buy a truck for $40,000 and depreciate it fully over 5 years using straight-line method of depreciation. However, it plans to use it for 8 years

Evaluate accounting rate of return and net present value, Citilink has a bu...

Citilink has a business line currently owns and runs 350 sightseeing buses and has a turnover of $10 million per annum. The current system for allocating jobs to drivers is very i

Illustrate about foreign exchange earnings, Q. Illustrate about foreign exc...

Q. Illustrate about foreign exchange earnings? In theory foreign exchange earnings must not be hedged as the chances of an adverse movement are equivalent to those of a favoura

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd