Question

Indicate whether the following instruments are examples of money market or capital market securities:

a. U.S. Treasury Bills

b. Long - Term corporate bonds

c. Common stocks

d. Preferred stocks

e. Dealer Commercial Paper

Answer 1

1. Money Market instruments are those which are generally issued by the entity to cater to the short term needs. Those can be in the form of liquidity management for banks, capital requirement ratios for commercial banks. The duration of the instrument in money market varies from as short as overnight delivery to a year

2. Capital Market Securities are more of a long term nature and are used to fund the asset base of the issuing entity. These are generally used for a longer tenor and for more strategic purposes unlike the money market instruments

Based on the above understanding, of the 5 options, US Treasury Bills and Dealer Commercial Paper are money market instruments and the rest 3 are capital market instruments

Treasury bills and commercial paper are short term instruments. However, common stock, preferred stock and Long term corporate bonds are used to fund the business and hence for going concern nature of the business are capital market instruments