BUSINESS FINANCE

Question 1

An inexpensive
way for the
institutions to
raise funds. These
funds are usually
available for only a
short period of
time; therefore,
their rates are generally lower
than funds which
are available for
use.

Answer 1

Money Market

Question 2

They also earn highest interest.
People avail
funds because of
their liquidity.
money market
They are avalable
most of the time
when the person
needs them.

Answer 2

Money market
instruments

Question 3

These are issued
by the banks or
mutual fund
maturity date. The
default risk is low,
and they are
companies. They
have no specific
usually invested in
money market
instruments,
treasuries, and
commercial
papers.

Answer 3

Money market
funds

Question 4

short-term debt guaranteed by
a commercial bank

Answer 4

Bankers’ Acceptances (BA)

Question 5

bank-issued savings
certificates with short-term
maturity

Answer 5

Certificates of deposit (CDs)

Question 6

unsecured
short-term corporate debt

Answer 6

Commercial paper

Question 7

short-term
maturity
government securities.

Answer 7

Repurchase agreements
(Repo)

Question 8

These are issued by
Treasury/Government. They mature within one year
and are generally free from default risks
because the government
will exert al l effort to pay.

Answer 8

Treasury Bills

Question 9

These are issued by
financially sound
business to fund
inventories and
mature in less than one
year and have low
receivables. They
default risk because
businesses usually have
good credit standing.

Answer 9

Commercial papers

Question 10

These are issued
by the banks,
credit unions, or
finance companies. The maturity rate and
default risk both
vary.

Answer 10

Consumer credit/
credit card debt

Question 11

The interest rates on
long-term debts is
higher than the
money market
instruments and are
usual ly locked in over
the entire l ife of the
debt.

Answer 11

Long-term
debts

Question 12

Examples of long-term
debts are:

Answer 12

Treasury bonds, Treasury notes

Question 13

cal led T-bonds for
short, are often referred to as long
bonds because they take the
longest to mature of the government-issued securities.
Treasury bonds are offered to
investors in terms of 20 and 30
years to maturity.

Answer 13

Treasury bonds

Question 14

are
similar to Treasury bonds
but have shorter terms,
including two, three, five,
seven, and ten years.

Answer 14

Treasury notes