Question

Bonds that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:
A. Consolidating securities.
B. Held-to-maturity securities.
C. Trading securities.
D. Securities available for sale.

Answer 1

Answer:

C. Trading Securities

Explanation:

Trading securities refer to those securities which are purchased not with the intention of holding them till maturity, but to realize the gains arising as a consequence of short term price movements.

Bonds refer to debt instruments issued by the borrower for raising long term finance whereby the borrower promised to pay fixed coupon rate of interest on timely basis and principal repayment upon redemption.

In the given case, bonds purchased with the intention of selling in the near future with an objective to benefit from short term price movements represent trading securities. The benefit would be in the form of short term capital appreciation.