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Ch 9 ans - TUTORIAL FOR CHAPTER 9 MONEY MARKET Theoretical...

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TUTORIAL FOR CHAPTER 9: MONEY MARKET Theoretical Questions: 1. What characteristics define the money markets? The money markets can be characterized as having securities that trade in one year or less, are of large denomination, and are very liquid. 2. Who issues commercial paper and for what purpose? Large businesses with very good credit standings sell commercial paper to raise short-term funds. The most common use of these funds it to extend short-term loans to customers for the purchase of the firm’s products. 3. Which of the money market securities is the most liquid and considered the most risk-free? Why? Treasury bills are usually viewed as the most liquid and least risky of securities because they are backed by the strength of the U.S. government and trade in extremely large volumes . 4. Why do businesses use the money markets? Businesses both invest and borrow in the money markets. They borrow to meet short-term cash flow needs, often by issuing commercial paper.
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