CISI Introduction To Securities And Investment Practice Exam

Which statement best distinguishes Treasury bills from commercial paper?

T-bills are long-term; CP short-term T-bills are government debt; CP is unsecured corporate debt CP is secured by assets; T-bills are secured T-bills pay coupons; CP is zero-coupon

Correct Answer:

T-bills are government debt; CP is unsecured corporate debt

Explanation:

Treasury bills and commercial paper are distinguished by who issues them and what backs the obligation. Treasury bills are government debt, issued by the government and backed by its credit; they are short-term, typically maturing within a year, and they do not pay periodic coupons but are sold at a discount to par. Commercial paper is short-term debt issued by corporations and, crucially, is unsecured—there is no collateral backing it, so the issuer’s credit quality determines risk and pricing. This contrast—government debt versus unsecured corporate debt—best captures the fundamental difference, which is why this statement is the most accurate. The other options mix up maturity, collateral, or coupon payment features that aren’t the defining distinction.

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