Debt securities issued by the federal government do not compensate investors for liquidity risk.

Question

Quizplus · Accepted Answer

Debt securities issued by the federal government, such as Treasury bonds and notes, are considered to be among the safest investments because they are backed by the full faith and credit of the United States government. As a result, they typically offer lower yields compared to riskier investments. However, they do not compensate investors for liquidity risk, which is the risk that an investor may not be able to sell their investment quickly enough or without significant loss due to market conditions. Investors who prioritize liquidity may therefore need to consider other types of investments, such as money market funds, that offer higher liquidity but may come with their own risks.

Debt Securities Issued by the Federal Government Do Not Compensate