Skip to content

FRM Part II · FRM Exam Part II · The Investment Function in Financial Services Management

A corporate treasurer must invest surplus cash for three months and prioritizes safety and liquidity over yield. Which instrument best fits these priorities?

A three-month US Treasury bill best fits because it carries minimal credit risk, very little interest rate risk over the short horizon, and trades in a deep, liquid market. The other choices add duration, credit or liquidity risk the treasurer wants to avoid.

  1. AA US Treasury bill with three months to maturityCorrect
  2. BA ten-year investment-grade corporate bond
  3. CA tranche of an unrated collateralized loan obligation
  4. DA five-year callable agency bond

Explanation

Short-dated Treasury bills have minimal credit risk, very low interest rate risk over a three-month horizon, and deep secondary markets. The longer bonds expose the treasurer to price risk and the unrated CLO tranche adds credit and liquidity risk.

Did you get it right without looking?

One question tells you little. A timed set on The Investment Function in Financial Services Management shows your real accuracy, how long you take and where you lose marks.

Practise The Investment Function in Financial Services ManagementFree diagnostic mock

More The Investment Function in Financial Services Management questions