People seems to confuse treasury bills with Open Market Operation (OMO). Someone should please help with the differences between both.
People seems to confuse treasury bills with Open Market Operation (OMO). Someone should please help with the differences between both.
You are right that Treasury bills and Open Market Operation are usually confused with each other. The truth is that both looks similar but the former is a debt instrument while the latter is a regulatory instrument.
Treasury bills is an instrument used by the government for short term borrowing which is discounted, that is, the interest on money invested is paid upfront. Treasury bills has Maturity period of 91 days, 180 days and 360 days. It is regarded as the most secured form of investments as it is backed up by the government
While,
Open Market Operation (OMO) is an instrument used by the central bank to regulate the economy by either increasing or decreasing the supply of money in the economy depending on the aim of the central bank. When CBN wants to increase money supply in the economy they buy Securities why they sell securities when they want to reduce the amount of money supply in the economy
But it is worthy of note to know that they also share some similarities
Similarities between Treasury bills and OMO
1. They are both Discounted instruments
2. They are both issued by the central bank
3. Both are tax free
4. Both can be used to regulate the economy
5. They are both an investment instruments
6. They can be bought in both Primary and secondary market
clear and concise answer. thanks
1. OMO is issuee by the CBN. However, T-bills are issued by the CBN on behalf of the Debt Management Office (which manages Nigeria's debt.
2. The main purpose of OMO is to achieve price stability while the main purpose of T-bills is to finance budget deficit that is, borow money.
3. OMO is issued whenever the CBN feels the need to manage liquidity in the system. However T-bills are issued every 2 weeks.
4. The tenor of OMO is 7 to 365 days while that of t-bils ranges from 91 days, 182 days, or 364 days.
5. The CBN is the primary obligor of OMO while the federal government is the obligor of T-bills.
Great addition 💯💯💯
succinct ✔️✔️✔️