Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What are Tax Anticipation Notes primarily issued by?

1. Corporations

2. Federal governments

3. Municipalities

4. Private banks

The correct answer is: Municipalities

Tax Anticipation Notes (TANs) are primarily issued by municipalities. These short-term securities are used by local governments to manage their cash flow and are backed by expected tax revenues. When municipalities anticipate receiving tax payments at a later date but need immediate funds for operational purposes, they issue TANs to bridge that gap. This allows them to finance ongoing expenditures, ensuring that they can meet their financial obligations despite the timing of tax revenue collections. Other organizations, such as corporations or federal governments, do not typically issue Tax Anticipation Notes, as they have different means of financing and managing cash flow. Private banks also do not issue TANs, as they are not involved in municipal revenue collection or management in that capacity. Understanding the specific context of TANs highlights their unique role in municipal finance, distinguishing them from other types of short-term financing instruments used by different entities.