CA Foundation · Business Economics · Money Market
Which of the following is the PRIMARY characteristic that distinguishes money market instruments from capital market instruments?
Money market instruments are defined by their short-term maturity of less than one year. This distinguishes them from capital market instruments (maturity >1 year) and equity instruments. The maturity timeframe is the defining feature, not the issuer type or the trading venue.
- AThey are traded on the stock exchange
- BThey have a maturity period of less than one yearCorrect
- CThey provide equity ownership to the investor
- DThey are issued only by the government
Explanation
Money market instruments are short-term debt instruments with maturity typically under one year, designed for liquidity management. Capital market instruments have longer maturities (more than one year). Equity instruments provide ownership, not debt. While many money market instruments are government-issued, money market is not exclusively a government domain—commercial papers and banker's acceptances are issued by corporates.
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