Question

Financial instruments Aa Aa Financial instruments are assets that have a monetary value or record a monetary transaction. To coordinate the exchange of capital between borrowers and lenders, financial instruments trade in the financial markets. These inancial instruments can be categorized on the basis of their issuers, maturity, risk, and other factors Identify the financial instruments based on the following descriptions Description Financial Instrument Issued by nonfederal government entities, these financial instruments are debt securities that fund their capital expenditures. They are exempt from most taxes imposed in the area where the securities are issued State and local government bonds Issued by money-centered financial firms, these short- or Certificates of deposit medium-term insured debt instruments pay higher interest than a regular savings account. They are low-risk instruments and have low returns These financial instruments are investment pools that buy such short-term debt instruments as Treasury bills (T-bills), certificates of deposit (CDs), and commercial paper. They can be easily liquidated Issued by corporations, these financial instruments give their holders a class ownership in a company. They are riskier than bonds but less risky than the general class of ownership Money market mutual funds Preferred stocks Which of the following are money market instruments? Check all that apply Corporate bonds Common stocks Preferred stocks X Commercial paper

Answer 1

Answer:

Issued by nonfederal government entities, these financial instruments are debt securities that fund their capital expenditures. They are exempt from most taxes imposed in the area where the securities are issued. - State and local government bonds

Issued by money-centered financial firms, these short- or medium-term insured debt instruments pay higher interest than a regular savings account. They are low-risk instruments and have low returns. - Certificates of deposit

These financial instruments are investment pools that buy such short-term debt instruments as Treasury bills (T-bills), certificates of deposit (CDs), and commercial paper. They can be easily liquidated. - Money market mutual funds

Issued by corporations, these financial instruments give their holders a class ownership in a company. They are riskier than bonds but less risky than the general class of ownership. - Preferred stocks

Commercial paper is a money market instrument.

Explanation:

State and government bonds are generally safe bonds that promise periodic interest payments. They repay face value by the maturity date listed. These bonds have the purpose of securing funds for government investments. Being backed up by the government, these bonds are usually deemed as secure.

Certificates of deposit is a well known financial firm product, giving the incentive to clients to leave their deposit untouched. These interests are usually low, however, they are nearly risk-free. It is up to each bank or firm to determine the exact terms of the CD offer, as it may clash with other financial products.

Money market mutual funds are funds that are specialized for investing in financial instruments that are extremely liquid, such as cash, cash equivalents etc. Because of the significant liquidity and low level of risk associated, they are popular with funding money market instruments.

Preferred stocks refer to having equity in a firm/company through the possession of these stocks. In contrast to common stock, preferred stockholders have a priority when it comes to claiming dividends. Preferred stockholders have little to no voting and decision rights in company management.

Commercial paper is a money market instrument that backs up short-term debt in a firm, so it is issued by one. Typically, it is used for inventories and short-term obligations (liabilities). Commercial papers are usually not backed up by a collateral, meaning only reputable companies with good debt ranking can issue them.