2.A Types and Characteristics of Cash and Cash Equivalents Flashcards
Maria is considering investing a portion of her client’s portfolio in a low-risk, highly liquid option. Which of the following investments would be most suitable for her objective?
A) Common stocks
B) Corporate bonds
C) Treasury bills
D) Municipal bonds
Treasury bills
Explanation: Treasury bills are a type of money market instrument that is known for their low risk and high liquidity, making them suitable for investors seeking low-risk, short-term investments.
2.A Types and Characteristics of Cash and Cash Equivalents
John wants to park some excess cash from his business operations in a highly liquid account, ensuring that the funds are insured by the government. Which option should he consider?
A) Corporate bonds
B) Commercial paper
C) Certificates of deposit
D) Common stocks
Certificates of deposit
Explanation: Certificates of deposit (CDs) are insured deposits and are backed by the government or a financial institution, making them a safe and liquid choice for parking excess cash.
2.A Types and Characteristics of Cash and Cash Equivalents
Sarah is looking for a short-term investment option for her client’s trust fund. She wants to invest in an instrument issued by the U.S. government. What should she consider?
A) Commercial paper
B) Treasury bills
C) Municipal bonds
D) Preferred stocks
Treasury bills
Explanation: Treasury bills are short-term government securities issued by the U.S. government, making them a suitable choice for a short-term investment with government backing.
2.A Types and Characteristics of Cash and Cash Equivalents
David is a conservative investor looking to maintain the safety of his principal while earning a modest return. Which investment option aligns best with his goals?
A) Common stocks
B) Municipal bonds
C) Demand deposits
D) Commercial paper
Municipal bonds
Explanation: Municipal bonds are relatively low-risk investments and can provide a modest return while preserving the investor’s principal.
2.A Types and Characteristics of Cash and Cash Equivalents
Tina is managing a corporate cash reserve and wants to invest in an instrument known for its high liquidity. What should she consider?
A) Preferred stocks
B) Money market instruments
C) Corporate bonds
D) Real estate investment trusts (REITs)
Money market instruments
Explanation: Money market instruments, such as commercial paper and Treasury bills, are known for their high liquidity and are suitable for managing corporate cash reserves.
2.A Types and Characteristics of Cash and Cash Equivalents
James has a short-term investment horizon and is looking for an option that can provide safety and stability. Which investment type should he choose?
A) Demand deposits
B) Common stocks
C) Preferred stocks
D) Money market instruments
Money market instruments
Explanation: Money market instruments are known for their short-term nature, safety, and stability, making them a suitable choice for James’s investment objectives.
2.A Types and Characteristics of Cash and Cash Equivalents
Lisa wants to invest a significant amount of money and is concerned about the safety of her principal. Which of the following options should she consider?
A) Real estate investment trusts (REITs)
B) Commercial paper
C) Corporate bonds
D) Insured deposits
Insured deposits
Explanation: Insured deposits, such as certificates of deposit and demand deposits, offer protection of the principal amount up to certain limits, providing safety for Lisa’s investment.
2.A Types and Characteristics of Cash and Cash Equivalents
Michael is a corporate treasurer looking for an investment option that allows for easy access to funds when needed for operational expenses. What type of investment should he choose?
A) Municipal bonds
B) Common stocks
C) Money market instruments
D) Treasury bills
Money market instruments
Explanation: Money market instruments, including commercial paper, offer easy access to funds, making them suitable for corporate treasurers managing operational expenses.
2.A Types and Characteristics of Cash and Cash Equivalents
Which of the following investments is NOT typically considered a cash equivalent?
A) Commercial paper
B) Demand deposits
C) Preferred stocks
D) Treasury bills
Preferred stocks
Explanation: Preferred stocks are not typically considered cash equivalents because they are equity securities and may not be as liquid as other cash equivalents.
2.A Types and Characteristics of Cash and Cash Equivalents
Jennifer is seeking an investment option with the lowest credit risk. Which of the following choices is the most appropriate for her?
A) Corporate bonds
B) Commercial paper
C) Municipal bonds
D) Treasury bills
Treasury bills
Explanation: Treasury bills are considered to have the lowest credit risk among the options listed, as they are backed by the full faith and credit of the U.S. government.
2.A Types and Characteristics of Cash and Cash Equivalents
