i ively hew money market security, having developed only in the late 1970s, but
ID: 2788558 • Letter: I
Question
i ively hew money market security, having developed only in the late 1970s, but havin They can be bought and sold until they mature, i.e., there is a relatively active secondary marke O Their primary use is in international trade 8. which of the following is not true of commercal paper (Point : 3) O it matures in nine months (actually 270 days) or less O it is issued by only the largest and most creditworthy corporations O it is normally collateralized (secured) by U.S. Treasury bills it normally yields a higher return than T bills 9. Which of the following is not a characteristic of money market securities: (Points : 3) they are short term they are highly liquid e) they are normally traded in very large denominations (ie, high dollar transactions) O they are risk free O all the above are characteristics of money market securities 10. An important financial institution that assists in the initial sale of securities in the primary market is the: (Points : 3) " investment bank commercial bank money market mutualExplanation / Answer
8)
A commercial paper is an unsecured short-term debt instrument with maturity less than 270 days. As it matures in less than 270 days, it is not required to be registered with Securities and Exchange Commission (SEC) which makes it a very cost-effective means of financing.
Since commercial paper is unsecured, therefore higher credit rating of the issuing company helps them to find the buyers of the commercial paper at a correct price. Thus generally large and most creditworthy organizations issue commercial papers.
Commercial paper is unsecured and hence it is not collateralized by U.S treasury bills. Thus the statement in third option is incorrect.
Since commercial paper is riskier than the t-bill, therefore the yield of commercial paper is higher than the t-bill.
Thus all statements are correct except the third option,
Hence third option is the answer.
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