How is the bidding type where bids are met prior to competitive bidder allocation considered___________?
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Answer: B. preferential basis
Explanation
Non-competitive bids are fulfilled on a preferential basis ahead of competitive bidder allocations. Treasury auction rules guarantee that non-competitive bidders receive their requested security amounts. This system protects smaller retail investors participating in government debt auctions. Treasury auctions accept both competitive bids with specific yields and non-competitive market bids. Non-competitive bidders agree to accept the yield determined by the competitive auction process. Allocating non-competitive bids first ensures broad public participation in sovereign debt sales.
Individual investors purchasing Treasury bills directly from the government use non-competitive bidding. Large institutional dealers must compete on price for their remaining bond allocations. Preferential allocation encourages everyday citizens to invest in government debt instruments safely. Firstly basis is an informal expression rather than the official financial auction term. Federal basis is incorrect because auction rules govern treasury allocations, not federal laws. Last basis contradicts the priority rule that places non-competitive orders ahead of others.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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