CMA Intermediate · Financial Management and Business Data Analytics · Money Market
A treasury manager at Kaveri Ltd has surplus cash of Rs 20 lakh for exactly 30 days and needs full safety with next-day liquidity. Which instrument is most suitable?
Units of a liquid money market mutual fund are most suitable because they invest in short-term, high-quality instruments, give quick redemption and have low price risk over a 30-day horizon. Long-dated debentures, equity and penalised long deposits do not suit short safe parking of cash.
- AUnits of a liquid money market mutual fundCorrect
- BA 10-year unsecured corporate debenture
- CEquity shares of a mid-cap company
- DA 5-year fixed deposit with premature withdrawal penalty
Explanation
A 30-day horizon with safety and liquidity requirements fits a liquid fund investing in short-term money market paper. Debentures and equity carry price risk and long maturities. A 5-year deposit with penalties does not provide cost-free liquidity.
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