Wednesday, August 19, 2009

Investors in treasury bills

Principal holders of treasury bills include commercial banks, non-financial corporations, state and local governments, and the Federal Reserve banks. Commercial banks and private corporations hold large quantities of bills as a reserve of liquidity until cash is needed. The most-attractive feature of bills to these institutions is their ready marketability and relatively stable price. The Federal Reserve banks conduct the bulk of their open-market operations in T-bills because of the depth and volume of activity in this market. In fact, bills play a crucial role in the conduct of monetary policy by the Federal Reserve System. The fed purchases and sells bills in an effort to influence other money market interest rates and thereby alter the volume and growth of bank credit and ultimately the total amount of investment spending and borrowing in the economy.

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