Capital market securities are considered liquid investments. Which of the following is the reason given for this?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → They are marketable on the stock exchanges.
Option (1) They are marketable on the stock exchanges. — Correct. Capital market securities are marketable on the stock exchanges, so a holder can sell them there for cash.
Option (2) There is a formal arrangement for their liquidity. — Incorrect. A formal arrangement for liquidity belongs to money market instruments. The Discount Finance House of India provides a ready market for them.
Option (3) Their issuers are financially sound. — Incorrect. The financial soundness of the issuers is why the money market is safer. Its issuers are mainly the government, banks and highly rated companies.
Option (4) The value of their units is generally kept low. — Incorrect. A low value of units explains the small investment outlay. It helps people with small savings to buy securities.
NCERT (Pre-rationalised Edition): “(v) Liquidity: Capital market securities are considered liquid investments because they are marketable on the stock exchanges. However, a share may not be actively traded, i.e. it may not easily find a buyer. Money market instruments on the other hand, enjoy a higher degree of liquidity as there is formal arrangement for this. The Discount Finance House of India (DFHI) has been established for the specific objective of providing a ready market for money market instruments.” |