THE MONEY MARKET

Question 1

The main vehicle used for transactions in the financial market.

Answer 1

Financial Instruments

Question 2

T/F: Financial instruments allows transfer of funds from entities with excess funds (investors) to entities who need funds (issuer) for business purposes.

Answer 2

TRUE

Question 3

The party that issues the financial instrument and agrees to make future cash payments to the investor.

Answer 3

Issuer

Question 4

The party that receives and owns the financial instrument and bears the right to receive payments to be made by the issuer. From an accounting perspective, investors recognize financial instruments as an asset.

Answer 4

Investor

Question 5

T/F: A money market is the type of financial market where these financial instruments with more than one year’s tenor are traded.

Answer 5

FALSE, it should be LESS THAN ONE YEAR’S TENOR

Question 6

What are the THREE fundamental characteristics of Money Market?

Answer 6

Usually sold in large denomination;
Mature in one year or less from the original issue date;
Low default risk

Question 7

In investor’s accounting perspective, most money market instruments are considered as cash equivalents due to the fact that they mature (i.e. cash can be redeemed) within ______ months or less
from the date of purchase.

Answer 7

THREE