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Question

Difficulty: MediumThe Capital Market: Stock Exchange, Securities, and Trading

An institutional investor purchases short-term debt obligations, such as 90-day Treasury bills, to manage temporary liquidity reserves. Which financial market is responsible for trading these short-term instruments?

  1. The Money MarketAnswer
  2. B
    The Capital Market
  3. C
    The Foreign Exchange Market
  4. D
    The Secondary Capital Market

Answer

The Money Market is responsible for trading short-term debt obligations like 90-day Treasury bills.
The money market is the financial market designed for buying and selling short-term debt securities with maturity periods of one year or less, including Treasury bills, commercial papers, and certificates of deposit.

Step-by-Step Solution

1
Analyze the financial instrument mentioned in the scenario
The instrument is a 90-day Treasury bill, which has a maturity period of less than one year (short-term).
Maturity duration determines whether an instrument belongs to the money market or the capital market.
2
Distinguish between money market and capital market functions
Money market deals in short-term funds (up to 1 year), while capital markets deal in long-term funds (over 1 year).
Treasury bills, commercial papers, and bankers' acceptances are money market instruments used for short-term liquidity management.

Key Concept

Distinction between Money Market and Capital Market Instruments
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Topics

The Capital Market: Stock Exchange, Securities, and Trading

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