Question : Which of the following is a feature of a money market instrument?
Option 1: High return on investment
Option 2: Long maturity period
Option 3: High liquidity
Option 4: None of the above
Correct Answer: High liquidity
Solution : The correct answer is (c) High liquidity
A money market instrument is a short-term debt instrument that typically has a high level of liquidity. These instruments are used for borrowing and lending in the short-term money markets, where financial institutions and corporations meet their short-term funding needs. Money market instruments include Treasury bills, commercial paper, certificates of deposit, and repurchase agreements.
While money market instruments generally provide lower returns compared to other investment options, they are characterized by their high liquidity, which means they can be easily bought or sold without significant price impact. This liquidity feature allows investors to access their funds quickly if needed.
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