Given below are two statements:
Assertion (A): Capital market securities are considered liquid investments.
Reason (R): Capital market securities are marketable on the stock exchanges.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): Capital market securities are considered liquid investments. — True. They are counted as liquid investments.
Reason (R): Capital market securities are marketable on the stock exchanges. — True. They can be bought and sold on the stock exchanges.
Why R explains A?
Liquidity means an investment can be turned into cash when needed. Capital market securities are marketable on the stock exchanges, so a holder can sell them there and get cash. Because of this marketability, they are liquid investments.
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.” |