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Difficulty: MediumCapital Market: Institutions and Instruments

Which of the following financial instruments represents an equity security that confers voting rights and residual ownership benefits on its holder in the capital market?

  1. Ordinary sharesAnswer
  2. B
    Treasury certificates
  3. C
    Certificates of deposit
  4. D
    Interbank call money

Answer

Ordinary shares represent an equity security conferring voting rights and residual ownership benefits in the capital market.
Ordinary shares are long-term capital market equity securities that represent ownership in a public enterprise. Holders of ordinary shares enjoy voting power at shareholder meetings and receive residual earnings through variable dividends.

Step-by-Step Solution

1
Identify the nature of the financial instrument requested in the prompt.
The target instrument must be a capital market equity security that provides ownership privileges and voting rights.
Equity securities represent ownership stakes in a company, whereas debt instruments represent borrowings.
2
Distinguish between capital market instruments and money market instruments.
Capital market securities are long-term assets (shares, bonds), whereas money market instruments are short-term debt tools (treasury certificates, certificates of deposit, call money).
Money market tools facilitate short-term liquidity management (under one year), while capital markets raise long-term funding.
3
Select the option that meets the criteria of equity ownership in the capital market.
Ordinary shares fit all criteria as equity securities carrying voting rights.
Ordinary shareholders are the actual owners of a company and bear the ultimate risk and residual reward.

Key Concept

Distinction between equity capital market instruments and money market instruments
Estimated Time:1m 0s
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Topics

Capital Market: Institutions and Instruments

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