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

Explain the purchasing power parity, Explain the purchasing power parity, b...

Explain the purchasing power parity, both of the absolute and relative versions. What causes the deviations from the purchasing power parity? Answer:  The absolute version of p

Put, Put This is an agreement which is allowing a holder of privacies t...

Put This is an agreement which is allowing a holder of privacies to sell them back to the issuer at a specified amount during a specified time interval. This technique protects

Treasury bills, T-Bills are issued to enable the government to tide o...

T-Bills are issued to enable the government to tide over short-term liquidity requirements with maturities varying from a fortnight to a year. These instruments a

Why are trend analysis and industry comparison important, Why are trend ana...

Why are trend analysis and industry comparison important to financial ratio analysis? Trend analysis assists financial managers and analysts see if a company's current financia

Define u.s. dollar and the canadian dollar, Under what circumstance would t...

Under what circumstance would the U.S. dollar and the Canadian dollar be said to have achieved purchasing power parity? The U.S. dollar and the Canadian dollar would be referred

The value of the quick ratio, Dev's Spa has cash of $50, accounts receivabl...

Dev's Spa has cash of $50, accounts receivable of $60, accounts payable of $200, inventory of $150 and accured expenses of $100. What will be the value of the quick ratio?

Assignment, how I can use this website?

how I can use this website?

What is face value and par value, What is Face Value/ Par Value Value o...

What is Face Value/ Par Value Value of security as mentioned on certificate of the security.  Face values and par values are two terms that are used interchangeably.  Corporate

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