Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the ACCA Certification Exam with interactive quizzes and detailed explanations. Get a head start on your success with our comprehensive study tools.

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What type of financial instruments are traded in money markets?

Bonds
Long-term securities
Foreign currency options
Short-term financial instruments

The correct answer is: Short-term financial instruments

In money markets, the primary focus is on short-term financial instruments that are typically issued for periods of one year or less. These instruments are crucial for managing liquidity and are essential for investors and institutions seeking to meet short-term funding needs or to invest excess cash temporarily. Short-term financial instruments include treasury bills, commercial paper, and certificates of deposit. These instruments are characterized by their low risk and high liquidity, enabling quick access to capital. The money market is designed for participants who require immediate funds or want to park their cash safely while earning interest for a short duration. The other types of financial instruments mentioned, such as bonds, long-term securities, and foreign currency options, do not align with the money market's focus. Bonds and long-term securities are usually associated with capital markets, where the trades involve longer-term investments. Similarly, foreign currency options pertain to derivatives markets, where trading involves different financial dynamics and instruments. Thus, the defining feature of the money market is its concentration on short-term financial instruments.