Banking Practice Exam 2025 - Free Banking Practice Questions and Study Guide

Question: 1 / 400

Which of the following would a bank generally classify as a long-term investment?

Treasury bill

Vault cash

Cash items in process of collection

Municipal bond

A bank would classify a municipal bond as a long-term investment because municipal bonds typically have maturities that can range from a few years to several decades. They are issued by local government entities to finance public projects and generally offer tax-exempt interest, making them attractive for investors looking for stable long-term returns.

In contrast, treasury bills are short-term securities with maturities of less than one year, making them unsuitable for classification as long-term investments. Vault cash and cash items in process of collection are considered liquid assets and are not classified as long-term investments since they are expected to be converted to cash relatively quickly. This distinction is critical for banks as they manage their portfolios, ensuring they align investments with expected cash flow needs and financial strategies.

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