In finance, a bill is a short-term debt instrument, typically maturing in less than a year and often sold at a discount to face value.
How a bill works
Many bills do not pay a coupon. Instead, the investor earns the return from the gap between:
- the discounted purchase price, and
- the face value repaid at maturity.
Because maturity is short, bills are usually less sensitive to interest-rate changes than longer-dated bonds.
Why bills matter economically
Bills are important in money markets because they help governments and firms raise short-term funds and give investors a highly liquid place to park cash.
Common examples include:
- treasury bills,
- commercial bills,
- trade bills.
Their yields also provide information about short-term financing conditions and monetary policy.
Related Terms
Knowledge Check
### What is the usual maturity of a bill?
- [x] Less than one year
- [ ] More than ten years
- [ ] Always exactly five years
- [ ] Perpetual
> **Explanation:** Bills are money-market instruments designed for short-term borrowing and lending.
### How do many bills provide a return to investors?
- [x] They are bought below face value and redeemed at face value
- [ ] They pay only stock dividends
- [ ] They appreciate because of monopoly power
- [ ] They never involve repayment of principal
> **Explanation:** Discount issuance is a standard feature of many bill markets, especially treasury bills.
### Why are bills important in the money market?
- [x] They provide liquid short-term financing and investment instruments
- [ ] They replace all long-term bonds
- [ ] They fix exchange rates automatically
- [ ] They eliminate credit risk in every case
> **Explanation:** Bills are central to short-term funding, liquidity management, and interest-rate transmission.