What type of investment is primarily classified as short-term, highly liquid, and low-risk?

What type of investment is primarily classified as short-term, highly liquid, and low-risk?

• A. Corporate bonds
• B. Stocks
• C. Money market instruments
• D. Real estate

Answer: (C)

The classification of money market instruments as short-term, highly liquid, and low-risk is accurate due to their specific characteristics. Money market instruments include assets such as Treasury bills, commercial paper, and certificates of deposit, which typically have maturities of one year or less. These instruments are designed to be easily converted into cash, making them highly liquid. Investors can quickly sell these assets without significant loss in value, which is a key factor in their appeal, especially for those looking for a safe place to park capital temporarily. In addition to liquidity, money market instruments are generally considered low-risk since they are often issued by government entities or financially stable corporations. This provides a level of security, as the default risk is minimal compared to equities or corporate bonds. Thus, the nature of money market instruments aligns perfectly with the criteria of being short-term, highly liquid, and low-risk.

The classification of money market instruments as short-term, highly liquid, and low-risk is accurate due to their specific characteristics. Money market instruments include assets such as Treasury bills, commercial paper, and certificates of deposit, which typically have maturities of one year or less.

These instruments are designed to be easily converted into cash, making them highly liquid. Investors can quickly sell these assets without significant loss in value, which is a key factor in their appeal, especially for those looking for a safe place to park capital temporarily.

In addition to liquidity, money market instruments are generally considered low-risk since they are often issued by government entities or financially stable corporations. This provides a level of security, as the default risk is minimal compared to equities or corporate bonds. Thus, the nature of money market instruments aligns perfectly with the criteria of being short-term, highly liquid, and low-risk.