CA Foundation · Business Economics · Money Market
Sundaram Traders, a firm with surplus cash that will be idle for about 45 days, wants a safe and liquid place to park it. In the context of the functions of the money market, which of these would most suit its need?
Sundaram Traders should invest in a Treasury Bill or a similar short-term money market instrument. The money market lets firms park idle surplus funds for short periods with high safety and liquidity, which fits a 45-day horizon, unlike equity, land or 20-year debentures.
- ABuying equity shares of a company for long-term growth
- BInvesting in a Treasury Bill or similar short-term money market instrumentCorrect
- CPurchasing land for resale after five years
- DSubscribing to a 20-year debenture issue
Explanation
One function of the money market is to give a place for parking short-term surplus funds with safety and liquidity. A Treasury Bill or a similar short-dated instrument matches a 45-day horizon. Equity, land and 20-year debentures expose the firm to price risk or illiquidity over such a short period.
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