Within the securities market, what is considered a “short-term IOU,” w

QUESTION

Within the securities market, what is considered a “short-term IOU,” what is considered a “long-term IOU,” and which offers lower risk for investors?

What will be an ideal response?

ANSWER

Answer: Short-term IOUs are money market instruments, such as U.S. treasury bills or bank CDs, that mature within one year. Long-term IOUs are bonds issues by governments and corporations. Money market instruments are very conservative and pose little risk to investors.
Explanation: Money market investments are short-term IOUs, debt securities that mature within one year. Bonds issued by government and corporations are long-term IOUs in which the issuer pays the buyer interest at regular intervals.