Question

3. Financial instruments 

Financial instruments are assets that have a monetary value or record a monetary transaction. To coordinate the exchange of capital between borrowers and lenders, financial instruments trade in the financial markets. These financial instruments can be categorized on the basis of their issuers, maturity, risk, and other factors. 

Identify the financial instruments based on the following descriptions.

Issued by nonfederal government entities, these financial instruments are debt securities that fund their capital expenditures. They are exempt from most taxes imposed in the area where the securities are issued. 

Issued by money-centered financial firms, these short- or medium-term insured debt instruments pay higher interest than a regular savings account. They are low-risk Commercial paper instruments and have low returns. Money market mutual funds 

These financial instruments are investment pools that buy such short-term debt instruments as Treasury bills (T-bills), certificates of deposit (CDs), and commercial paper. They can be easily liquidated. 

Issued by corporations, these instruments can have maturities from 1-40 years. The risk depends on the financial strength of the issuing corporation. 

Which of the following are money market instruments? Check all that apply. 

Corporate bonds 

Preferred stocks 

Long-term bank loans 

Commercial paper 

Certificates of deposit 

A financial instrument whose value is derived from the value of an underlying asset is called a speculation .

Answer 1

1. The answer is "US Treasury bills"

US treasury bills are exempted from tax at state or local government level

2. The answer is "Commercial paper"

Commercial paper are short term debt instrument issed by financial firms that pays higher interest rate than savings account

3. The answer is "Money market mutual funds"

These money market mutual funds invest in short term securities having maturity less than a year like COD, commercial paper or T Bills

4. The answer is "Corporate Bonds"

Corporate bonds have maturity of 1 to 40 years and are rated or depend on financial strength of the corporation

5. COMMERCIAL PAPER, CERTIFICATE OF DEPOSIT are two money market instruments

6. A financial instrument whose value is derived from the value of an underlying asset is called a derivative .