Which instrument is typically a short-term debt instrument?

Which instrument is typically a short-term debt instrument?

• A. Bonds
• B. Bank term loan
• C. Overdraft
• D. Mortgage

Answer: (C)

In short-term liquidity management, an overdraft fits the bill because it’s a bank facility that lets you spend beyond your available cash up to an approved limit and is usually repayable quickly, often on demand, with interest charged only on the amount overdrawn. This makes it the go-to tool for handling day-to-day cash gaps. Bonds are long-term borrowing with fixed maturities that span several years, so they’re not used for immediate liquidity needs. A bank term loan is a structured loan with a set repayment schedule and term, commonly extending beyond a year and thus more of a medium-to-long-term financing tool. A mortgage is a long-term secured loan, typically repaid over 15 to 30 years.

In short-term liquidity management, an overdraft fits the bill because it’s a bank facility that lets you spend beyond your available cash up to an approved limit and is usually repayable quickly, often on demand, with interest charged only on the amount overdrawn. This makes it the go-to tool for handling day-to-day cash gaps.

Bonds are long-term borrowing with fixed maturities that span several years, so they’re not used for immediate liquidity needs. A bank term loan is a structured loan with a set repayment schedule and term, commonly extending beyond a year and thus more of a medium-to-long-term financing tool. A mortgage is a long-term secured loan, typically repaid over 15 to 30 years.