Advanced Diploma of Financial Planning (ADFP) Practice Test

Which of the following instruments is considered a money market security?

1. Corporate bonds

2. Treasury bills

3. Equity shares

4. Real estate investment trusts

The correct answer is: Treasury bills

Treasury bills are classified as money market securities because they are short-term government debt instruments issued by the U.S. Treasury. These securities are typically issued with maturities of one year or less and are sold at a discount to their face value. At maturity, the investor receives the full face value, which provides a safe and liquid investment option, ideal for those looking to preserve capital and manage short-term funding needs. In contrast, corporate bonds, equity shares, and real estate investment trusts are not categorized as money market securities. Corporate bonds are long-term debt obligations that can have maturities exceeding one year. Equity shares represent ownership in a company and are subject to market risks and volatility, making them unsuitable for the money market designation. Real estate investment trusts (REITs) focus on real estate investment and typically involve longer-term commitments and fluctuations in property values, which also lie outside the parameters of money market securities.