Question

Which type of short-term loan is secured with Treasury bills as collateral? A. Commercial paper B....

  1. Which type of short-term loan is secured with Treasury bills as collateral?

    A.

    Commercial paper
    B.

    Repurchase agreements
    C.

    Certificates of deposit
    D.

    Federal funds
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Answer #1
  • Commercial paper is generally unsecured and therefore not backed by any collateral
  • Certificate of deposit is the certificate received when a person deposits money in the bank account. CD loan is backed by the deposit money and not the treasury bills
  • Federal funds loan are taken by the commercial banks from the Federal reserve. This loan is an overnight loan to meet the reserve requirement of the banks. This is not backed by any collateral.
  • Repurchase agreement is a short term sale of a government security i.e. the treasury bill. This agreement involves buying it back at a higher price at the end of the agreement. these agreements can be for a short period of time i.e. even a day. If not bought back, the lender forfeits the underlying treasury security. So the treasury security is used as a collateral. So B is the correct option
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