NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A client is seeking highly liquid, short-term investments that offer safety of principal and are suitable for holding cash reserves. They prioritize stability over high returns. Which of the following would be the most appropriate recommendation?
- AMoney Market Instruments
- BGrowth Stocks
- CLong-term Corporate Bonds
- DReal Estate Investment Trusts (REITs)
Show answer & explanationAnswer & explanation
Correct answer: A. Money Market Instruments
Money market instruments are short-term, highly liquid debt instruments with minimal risk, making them ideal for cash reserves where safety and stability are prioritized over high returns.
Why the other options are wrong
- B. Growth stocks are equity investments with high volatility and risk, not suitable for safety of principal.
- C. Long-term corporate bonds carry interest rate risk and are not considered highly liquid or short-term.
- D. REITs are real estate investments, generally less liquid than money market instruments and subject to market fluctuations.
Money Market Instruments
Short-term debt securities that are highly liquid and generally considered low-risk, used by individuals and institutions for cash management.
- Maturities typically less than one year.
- Examples include Treasury bills, commercial paper, certificates of deposit (CDs), repurchase agreements.
- Prioritize safety and liquidity over high returns.
- Often used for temporary cash holdings or emergency funds.
Memory trick: Cash needs: Safety, Liquidity, Short-term—like a Money Market.