Certified Financial Management Specialist Practice Exam

Which of the following describes Treasury Bills?

1. Long-term loans issued by corporations

2. Short-term government securities sold at a discount

3. Investments managed by private firms

4. Savings accounts offered by financial institutions

The correct answer is: Short-term government securities sold at a discount

Treasury Bills, often referred to as T-Bills, are short-term government securities that are sold at a discount to their face value. This means that when investors purchase T-Bills, they pay less than the nominal value, and upon maturity, they receive the full face value. The difference between the purchase price and the face value represents the interest earned by the investor, which is effectively the return on investment. The short-term nature of T-Bills is significant; they are typically issued with maturity periods ranging from a few days up to one year. This makes them an attractive option for investors looking for a secure, low-risk place to park their money for a short period while still generating a return. T-Bills are backed by the full faith and credit of the U.S. government, which adds to their appeal as a stable investment vehicle. In contrast, the other options provided describe different financial products or categories that do not reflect the characteristics of Treasury Bills. For instance, long-term loans issued by corporations are typically bonds or notes, investments managed by private firms relate to various investment funds or portfolios, and savings accounts are deposit products that offer liquidity but not the same investment characteristics as T-Bills.