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Question

Difficulty: MediumCapital Market: Institutions and Instruments

A manufacturing firm seeking to raise long-term debt capital to expand its production plant would issue which of the following financial instruments on the capital market?

  1. DebenturesAnswer
  2. B
    Treasury Bills
  3. C
    Commercial Papers
  4. D
    Bankers' Acceptances

Answer

Debentures
Debentures are long-term debt securities issued by companies to raise long-term funds from investors, carrying a fixed rate of interest. Because they fund long-term capital investments, they are traded on the capital market.

Step-by-Step Solution

1
Analyze the financial market requirement in the question
The firm requires long-term debt capital for corporate expansion.
Financial markets are divided based on maturity: the money market provides short-term funds (under one year), while the capital market provides medium- to long-term funds.
2
Classify each option by market type and tenure
Treasury Bills, Commercial Papers, and Bankers' Acceptances are short-term money market instruments. Debentures are long-term corporate debt securities traded on the capital market.
Corporate debentures carry a fixed rate of interest and mature over a long duration, making them long-term debt capital instruments.

Key Concept

Capital Market Debt Instruments
Estimated Time:1m 0s
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Topics

Capital Market: Institutions and Instruments

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