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Which of the following is not a money market instrument?

BingMag Explains which of the following is not a money market instrument

a) Treasury bills

b) Commercial paper

c) Corporate bonds

d) Repurchase agreements

c) Corporate bonds

Out of the following options, the one that is not a money market instrument is a corporate bond. Money market instruments are short-term debt securities that have high liquidity and low risk. They are typically issued by governments, financial institutions, and large corporations to meet their short-term funding requirements.

1. Treasury bills (T-bills):

These are short-term debt obligations issued by the government to finance its short-term cash needs. T-bills have maturities ranging from a few days to one year and are considered one of the safest investments as they are backed by the full faith and credit of the government.

2. Commercial paper:

This is an unsecured promissory note issued by large corporations to raise short-term funds. It represents a promise to repay the borrowed amount within a specified period, usually ranging from 1 to 270 days. Commercial paper is typically issued at a discount to its face value and provides a higher yield compared to other money market instruments.

3. Certificates of deposit (CDs):

These are time deposits offered by banks and financial institutions with fixed maturity dates. Investors deposit a specific amount of money for a predetermined period, and in return, they receive interest on their investment. CDs are considered low-risk investments as they are insured by the Federal Deposit Insurance Corporation (FDIC) up to a certain limit.

4. Repurchase agreements (repos):

Repos are short-term loans where one party sells securities to another party with an agreement to repurchase them at a later date. They are commonly used by financial institutions to manage their short-term liquidity needs. Repos are considered safe investments as they are collateralized by high-quality securities.

5. Corporate bond:

Unlike the other options mentioned above, a corporate bond is not a money market instrument. It is a long-term debt security issued by corporations to raise capital for various purposes, such as expansion, acquisitions, or refinancing existing debt. Corporate bonds have longer maturities, typically ranging from 5 to 30 years, and are subject to higher credit risk compared to money market instruments.

While corporate bonds can be traded in the secondary market, they are not considered part of the money market due to their longer-term nature and higher risk profile. Money market instruments, on the other hand, are designed to provide short-term funding and are characterized by their high liquidity and low credit risk.

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