What type of financial instrument are bond anticipation notes (BAN)?

What type of financial instrument are bond anticipation notes (BAN)?

• A. Long-term investment vehicles
• B. Short-term money market instruments
• C. Equity securities
• D. Certificates of deposit

Answer: (B)

Bond anticipation notes (BAN) are classified as short-term money market instruments. They are issued by municipalities and are designed to provide short-term financing in anticipation of future bond issuance. Essentially, these notes are a way for local governments to secure immediate funding, typically for projects or expenditures, when they expect to receive funding from a longer-term bond issue in the near future. Since BANs typically have maturities ranging from a few months to a couple of years, they do not qualify as long-term investment vehicles. Instead, they are more akin to other short-term instruments that are highly liquid and often used to meet short-term funding needs. They are not equity securities, as they represent debt rather than ownership in a company, and they differ from certificates of deposit (CDs), which are time deposits offered by banks and usually pay interest over a specified term. Therefore, the categorization as short-term money market instruments is the most accurate for bond anticipation notes.

Bond anticipation notes (BAN) are classified as short-term money market instruments. They are issued by municipalities and are designed to provide short-term financing in anticipation of future bond issuance. Essentially, these notes are a way for local governments to secure immediate funding, typically for projects or expenditures, when they expect to receive funding from a longer-term bond issue in the near future.

Since BANs typically have maturities ranging from a few months to a couple of years, they do not qualify as long-term investment vehicles. Instead, they are more akin to other short-term instruments that are highly liquid and often used to meet short-term funding needs. They are not equity securities, as they represent debt rather than ownership in a company, and they differ from certificates of deposit (CDs), which are time deposits offered by banks and usually pay interest over a specified term. Therefore, the categorization as short-term money market instruments is the most accurate for bond anticipation notes.