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Question

Difficulty: EasyThe Money Market: Operations and Financial Instruments

Which of the following short-term financial instruments is issued by the central bank on behalf of the government to raise funds for periods usually not exceeding one year?

  1. A
    Debentures
  2. Treasury billsAnswer
  3. C
    Ordinary shares
  4. D
    Development stocks

Answer

Treasury bills
Treasury bills are short-term money market debt instruments issued by the central bank on behalf of the government to raise short-term funds maturing within 91 to 364 days.

Step-by-Step Solution

1
Identify the issuer and duration specified in the question stem.
The instrument is issued by the central bank on behalf of the government for a short-term period (up to 364 days).
Money market instruments cater exclusively to short-term borrowing and liquidity needs.
2
Distinguish between short-term money market instruments and long-term capital market securities.
Treasury bills are short-term money market debt instruments, whereas debentures, ordinary shares, and development stocks are long-term capital market instruments.
Treasury bills provide risk-free short-term financing to the government.

Key Concept

Treasury Bills as Money Market Instruments
Estimated Time:45s
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Topics

The Money Market: Operations and Financial Instruments

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