Canadian Securities Course (CSC) Level 2 Practice Exam

What type of fixed income investments are usually of high quality and often from the government?

1. High yield bonds

2. Junk bonds

3. Treasury bills

4. Corporate bonds

The correct answer is: Treasury bills

Treasury bills are indeed a type of fixed income investment that is usually of high quality and issued by the government. They are short-term securities that the government issues, typically with maturities of one year or less. Since they are backed by the full faith and credit of the government, they carry minimal credit risk, making them a safe investment choice. Investors are drawn to Treasury bills for their security and liquidity, particularly in turbulent economic times. The other options represent different categories of fixed income investments. High yield bonds are associated with higher risk due to lower credit quality but offer higher potential returns. Junk bonds are even lower in credit quality and therefore carry significant risk, which contrasts with the stability associated with government-issued securities. Corporate bonds can vary in quality, with some being investment grade and others being much riskier; however, they are not necessarily backed by the government and can be subject to credit default risk.