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Which three instruments are named as the most popular marketable securities?
ACommon stock, preferred stock, corporate debentures
BTreasury bills, certificates of deposit, commercial paper
CMutual funds, futures contracts, stock options
DMortgage loans, term loans, and trade credit
Answer & Solution
Correct answer: B. Treasury bills, certificates of deposit, commercial paper
1. Marketable securities are short-term investments that are easily converted into cash.
2. Surplus cash is parked in them temporarily, since the financial manager wants low-risk investments offering high returns.
3. The three most popular are Treasury bills, certificates of deposit and commercial paper.
4. Common stock and futures contracts carry price risk and no fixed short maturity, so surplus operating cash does not belong in them.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.2 How Organizations Use Funds_
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