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Answers for Tutorial Questions due Week 5

Answers for Tutorial Questions due Week 5 - Answers for...

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Answers for Tutorial Questions due Week 5 7.2 What are the characteristics of money market instruments? Why must a financial claim possess these characteristics to function as a money market instrument? The three fundamental characteristics of money market instruments are: (a) low default risk, (b) short-term to maturity, and (c) high marketability. These characteristics give money market instruments their characteristic of being low risk. 7.3 What types of firms issue commercial paper? What are the characteristics critical to being able to issue commercial paper? Large high-credit rated businesses issue commercial paper as an inexpensive source of short-term direct borrowing. Commercial paper is an alternative to prime rate borrowing from a commercial bank and, typically, the rates are lower than rates charged by banks. Most investors, an in attempt to protect their principal, only want paper issued by firms highly rated by rating agencies. Rating agencies will quickly
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