Question

Why do banks buy Treasury bonds?

a. Banks want to efficiently use their deposits.

b. Buying Treasury bonds is a core function of banks

c. The Volcker Rule actually prohibits banks from buying Treasury bonds.

d. Banks are required to hold a certain percentage of assets in Treasury bonds.

Answer 1

Option (a) : Banks want to efficiently use their deposits.

Explanation:

~ The treasury bonds are the safest investments when it come to risk profiles of investments.

~ The reason for that is that such bonds are issued by the Government itself which minimizes the default risk to the maximum level.

~ Hence, in order to generate constant fixed revenues with least of zero default risk, the banks tends to invest in the treasury securities to use the depositors funds safely and securely.