Treasury bills & commercial paper

Market Treasury bills are issued by state bank of Pakistan serve as negotiable debt instrument which has full backing of government of Pakistan .This is a type of bond which is normally used as cash equivalent in many companies and financial institutions ,unlike normal bonds they don’t come with long maturity they have normally 6 month maturity which makes them safe and easily trade able then cash .normal T -bills  can be ranged from 28 days to 6 months globally .They are zero coupon bond offered already below their actual face value(value which written on the face of T-BILL ).E.g if a bill is worth 5 thousand Pkr, it is offered at 4500 pkr ,due to this fast and safe maturity t -bills are are considered to safest investment .

Treasury bills are easily trade able in open and secondary market they don’t have any script written on them this makes them very easily trade able and also considered as alternative to cash at times . They are completely different from Strips(zero coupon bonds ) which are

almost same but have long maturity ranging from 3 to 10 years average and are also more risky then Treasury bills.


Along with Treasury bills their is another short term investment and form of cash alternative is commercial paper which is an unsecured promissory note issued by  financial markets on a fixed rate are sometimes considered as Cash equivalent but the rule of cash and cash equivalent is that is don’t have maturity more then 90 days so commercial papers which have maturity less then 90 days are cash equivalent and normally give more profit then T bills .But these come with huge risk because they are not backed by any state bank or Government .They are valued on market on their issuers credit rating given by credit rating agencies .Chimerical papers are mainly issued to fulfill cash shortage instead of getting loan from banks the companies go market and raise finance via these commercial papers or term finance certificates .Some the these are assets backed


.The amount of  commercial paper being traded around the world is more then 900 billion us dollars . Commercial paper was the one of the main players in 2007 financial crises,due to Lehman and other financial  failing to convince the doubters about their secure financial health which caused the commercial paper trading to almost zero being issued or traded led to firms going into administration and ultimately falling down .In Pakistan the rule of  issuing commercial paper is that it has to be minimum of 100 days and less then a year .Which rules it out as a cash equivalent in Pakistan but it is still a form in many firm and companies due to interest they can earn instead of holding cash in bank account which could be valued less then it’s today to lack of stability of Pakistani rupee against dollar .

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