U.S. Treasury bills are considered the safest of all money market instruments because there is almost no risk of
A demarcation.
B default.
C desertion.
D defeat.
The correct answer and explanation is:
The correct answer is B: default.
U.S. Treasury bills (T-bills) are considered the safest money market instruments primarily because they are backed by the full faith and credit of the U.S. government. This means that the likelihood of the U.S. government failing to meet its debt obligations is extremely low, and thus the risk of default is virtually nonexistent. When investors purchase T-bills, they are essentially lending money to the U.S. government for a short term in exchange for a guaranteed return, making it one of the most secure investments available.
In the context of financial instruments, default refers to the failure of a borrower to repay a debt as agreed. With Treasury bills, the U.S. government has an unparalleled ability to raise funds, primarily through taxing its citizens and printing money if necessary, ensuring that it can always meet its obligations. This has historically been proven, as the U.S. has never defaulted on its debt.
Additionally, demarcation, desertion, and defeat are terms that do not relate to the risk of default in financial contexts. Demarcation typically refers to boundaries or separation in various contexts, desertion implies abandoning a position or responsibility, and defeat relates to a loss in battle or competition—all of which are irrelevant to the financial safety of T-bills.
Investors flock to Treasury bills during times of uncertainty or financial volatility because of their minimal risk. In fact, they serve as a benchmark for risk-free investments, and their yields are often used to compare the return on other securities. As such, the primary risk associated with T-bills is opportunity cost, not default, since the returns are typically lower than other, riskier investments.