Which of the following is a feature of a treasury bill?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → It has an assured yield.

Option (1) It is repayable on demand. — Incorrect. Repayment on demand is a feature of call money. Call money is short-term finance of one day to fifteen days that banks lend to each other. A treasury bill is not repayable on demand; it is repaid at par when it matures, within one year.

Option (2) It is used to finance the credit sales of firms. — Incorrect. Credit sales are financed by a commercial bill. A commercial bill is a bill of exchange used to finance the working capital needs of business firms. A treasury bill is borrowing by the Government.

Option (3) It has an assured yield. — Correct. Treasury bills are borrowing by the Government of India, so their return is assured. They are also highly liquid, with negligible risk of default.

Option (4) It is issued by large and creditworthy companies. — Incorrect. This describes commercial paper, a short-term unsecured promissory note that large and creditworthy companies issue to raise short-term funds. A treasury bill is issued by the Reserve Bank of India on behalf of the Central Government.

NCERT (Pre-rationalised Edition): “1. Treasury Bill: A Treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds. Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and negligible risk of default. …”