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Treasury Bills
Treasury bills (T-bills) are short-term government securities that are sold by the United States Treasury to raise money. T-bills are typically used to control short-term interest rates and to manage cash balances.
Key features of T-bills:
- Interest rate: T-bills yield a fixed interest rate, which is set at the time of issuance.
- Maturity: T-bills have a maturity of less than one year, typically from one month to one year.
- Government security: T-bills are considered to be a safe investment because they are backed by the U.S. government.
- Liquidity: T-bills are highly liquid and can be easily traded in the market.
Types of T-bills:
- Treasury Bill: The most common type of T-bill, typically with maturities of one year or less.
- Treasury Bill Security: A type of T-bill that is sold in larger denominations than regular T-bills.
- Treasury Bill Indexed Security: A type of T-bill that is indexed to inflation.
Uses of T-bills:
- Interest rate control: T-bills are used to control short-term interest rates.
- Cash management: T-bills are used to manage cash balances by governments and corporations.
- Speculation: T-bills can be used for speculation purposes.
Advantages:
- Safe: T-bills are considered to be a safe investment because they are backed by the U.S. government.
- Liquid: T-bills are highly liquid and can be easily traded in the market.
- Low risk: T-bills have a low risk of default.
Disadvantages:
- Low return: T-bills offer a low return on investment compared to other government securities or investment vehicles.
- Limited maturity: T-bills have a limited maturity, which means that they cannot be used to save for long-term goals.