CA Foundation · Business Economics · Money Market
A company with a temporary cash surplus of ₹50 lakh for three weeks wants to earn some return without risking its principal or losing quick access to the money. Which market is most suited to this purpose?
The money market is most suitable, because it deals in short-term, low-risk and highly liquid instruments of up to one year. A three-week surplus can earn a return there while protecting the principal and staying easily convertible into cash, unlike equity or long-term debentures.
- AMoney marketCorrect
- BCapital market for equity shares
- CLong-term debenture market
- DReal estate market
Explanation
The money market deals in short-term, highly liquid, low-risk instruments, usually up to one year. A three-week surplus fits this market. Equity shares and long-term debentures carry price risk and are meant for long-term funds, so they do not give safety and quick liquidity.
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