What type of securities do money market funds typically invest in?

What type of securities do money market funds typically invest in?

• A. Long-term corporate bonds
• B. Equity securities
• C. Short-term securities
• D. Real estate assets

Answer: (C)

Money market funds primarily invest in short-term securities, which are characterized by their liquidity and low risk. These securities typically include Treasury bills, commercial paper, certificates of deposit, and other highly liquid instruments that have maturities of one year or less. The goal of a money market fund is to provide investors with a safe place to park their money while earning a modest return, maintaining capital preservation and liquidity. Investing in short-term securities allows these funds to stabilize their net asset value, generally keeping it at $1.00 per share. This feature is particularly appealing to conservative investors looking for a low-risk investment option, as it minimizes exposure to fluctuations that can occur with longer-term or higher-risk securities. Other types of securities, such as long-term corporate bonds, equity securities, and real estate assets, do not align with the primary objectives of money market funds. Long-term corporate bonds and equity securities tend to entail greater risk and price volatility, while real estate assets involve complex valuation and management issues. Thus, the focus on short-term securities is what distinguishes money market funds and makes them a practical choice for those seeking safety and liquidity for their cash holdings.

Money market funds primarily invest in short-term securities, which are characterized by their liquidity and low risk. These securities typically include Treasury bills, commercial paper, certificates of deposit, and other highly liquid instruments that have maturities of one year or less. The goal of a money market fund is to provide investors with a safe place to park their money while earning a modest return, maintaining capital preservation and liquidity.

Investing in short-term securities allows these funds to stabilize their net asset value, generally keeping it at $1.00 per share. This feature is particularly appealing to conservative investors looking for a low-risk investment option, as it minimizes exposure to fluctuations that can occur with longer-term or higher-risk securities.

Other types of securities, such as long-term corporate bonds, equity securities, and real estate assets, do not align with the primary objectives of money market funds. Long-term corporate bonds and equity securities tend to entail greater risk and price volatility, while real estate assets involve complex valuation and management issues. Thus, the focus on short-term securities is what distinguishes money market funds and makes them a practical choice for those seeking safety and liquidity for their cash holdings.