Declaration of auction results, Financial Management

Assignment Help:

Typically, there exist two types of bids in the treasury auction process. They are: Competitive bid and non-competitive bid.

A non-competitive bid is a bid an entity submits and which is willing to purchase the auctioned security at the pre-determined yield by the auction process. Normally, individual investors, who are mostly smaller institutional investors, submit a non-competitive bid for purchase of treasury securities. In such case, the bidder submits only the desired quantity but not the yield at which he is willing to purchase the auctioned security. This desired quantity should not exceed $1 million for treasury bills and $ 5 million for treasury coupon securities.

On the contrary, competitive bid is a bid submitted by the bidder in which he specifies the quantity desired and the yield at which he is willing to purchase the auctioned security. Normally, these are the bids the brokers/dealers, depository institutions, and some of the larger money management firms submit.

The auction results are declared after deducting the total non-competitive tenders and non-public purchases from the total securities auctioned. Non-public purchases mean the purchases made by the Federal Reserve itself. The remaining amount after such deduction is meant for distribution among the competitive bidders.

Subsequently, the bids are arranged from the lowest yield bid to the highest yield bid, i.e., the bids are arranged from the highest price to the lowest price. Until the amount to be distributed to the competitive bidders is completely allocated, all competitive bids (starting form the lowest yield bid) are accepted. Further, the highest yield the treasury accepts is referred to as stop yield and bidders at that yield are awarded a percentage from their total tender offer.

In US, all treasury auctions are single-price auctions. In it, all bidders are awarded securities at the stop yield i.e., the highest yield of accepted competitive tenders. This type of auction is termed as 'Dutch auction'. 


Related Discussions:- Declaration of auction results

Determination of credit terms, Determination of Credit Terms:- The sec...

Determination of Credit Terms:- The second feature of receivable management, subsequent to setting the credit standards and assessment of credit worthiness of the customers, i

What the term objective denotes- financial management, What the term object...

What the term objectives denotes- financial management It must be noted at the outset that term 'objective' is used in the sense of a goal or decision criterion for three decis

Determine the concept of cash flow to shareholders, Does financial leverage...

Does financial leverage (debt) have any impact on the Free Cash Flow, on the Cash Flow to Shareholders, on the growth of the company and on the value of the shares? Debt has no

Can a company have a default rate on its accounts receivable, Can a company...

Can a company have a default rate on its accounts receivable that is too low?  Explain. A company could comprise a default rate on AR that would be referred too low if by liberal

Life insurance - property and causality insurance, What are the differences...

What are the differences between life insurance and property and causality insurance? Life insurance prevents against death, retirement and illness. Companies obtain premiums b

Optimal cash model, Optimal Cash Model: Cash Management is a bigger as...

Optimal Cash Model: Cash Management is a bigger aspect that involves range of functions that assist individuals and business to process their payments and receipts in an organ

Define exchange exposure of company affect by exchange rate, Assume that yo...

Assume that your company has an equity position in a French firm. Explain the condition under which the dollar/franc exchange rate uncertainty does not comprise exchange exposure f

Describe factors contributing to effective cash management, Describe the ma...

Describe the major factors contributing to effective cash management in a firm.  Why is the cash management process more difficult in a MNC? An effective cash management system s

Explain financial management and functional areas , 1.  Discuss the various...

1.  Discuss the various techniques of cash management for an efficient working capital Management. 2.  Discuss the MM Hypothesis of Capital structure and its importance in corpo

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