An investor wanted to invest Rs. 20,000 in Treasury Bills for a period of 91 days. When he approached the Reserve Bank of India for this purpose, he came to know it was not possible.
Identify the reason why the investor could not invest in the Treasury Bill.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Treasury Bills can be issued for a minimum amount of Rs. 25,000 and in multiples thereof.
Option (1) Treasury Bills can be issued for a minimum amount of Rs. 25,000 and in multiples thereof. — Correct. A Treasury bill is a short-term borrowing instrument of the Government of India. It is available only for a minimum of Rs. 25,000 and in multiples of that amount. Rs. 20,000 is below the minimum, so the investment was not possible.
Option (2) Treasury Bills can be issued to Financial Institutions only. — Incorrect. Treasury bills are not reserved for financial institutions. The investor was turned away because of the amount, not because of who he was.
Option (3) Treasury Bills are Zero Coupon Bonds issued by the State Government on behalf of Reserve Bank of India. — Incorrect. Treasury bills are indeed zero coupon bonds, but the roles are the wrong way round. They are issued by the Reserve Bank of India on behalf of the Central Government.
Option (4) Treasury Bills are an instrument of short-term borrowing by the Government of India maturing after one year. — Incorrect. Treasury bills mature in less than one year, such as 91 days. That short maturity is what makes them a money market instrument.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.
NCERT (Pre-rationalised Edition): “Treasury Bill: … They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds. Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and negligible risk of default. They are issued at a price which is lower than their face value and repaid at par. The difference between the price at which the treasury bills are issued and their redemption value is the interest receivable on them and is called discount. Treasury bills are available for a minimum amount of Rs 25,000 and in multiples thereof.” |