Question20 Regarding the money market, bond market and equity market, which of the following statements is true: Money markets comprise debt securities with terms less than 1 year, bond markets comprise debt securities with terms greater than 1 year The money market comprises only prime credits issuing debt with maturities of between 1 and 10 years, whereas the bond market can comprise any quality of credit Bond markets categorise securities into preferred and common bonds The bond market comprises debt securities, the money market comprises debt and equity securities, and the equity market comprises equity securities The equity market has the least risk ResetMaximum marks: 3 Flag question undefined

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BlackTom AI · Accepted Answer

Money market instruments are short-term debt securities, while bonds are longer-term debt instruments. This distinction is the key concept that answers the question.

1. Relevant knowledge points and concepts
- Money market: market for short-term, highly liquid debt securities, typically with maturities of less than 1 year (examples: Treasury bills, commercial paper, certificates of deposit, repos).
- Bond (capital) market: market for longer-term debt securities, generally with maturities greater than 1 year (examples: government bonds, corporate bonds, municipal bonds).
- Equity market: market for ownership shares (common and preferred stock), whose risk/return profile differs from debt.
- Risk ordering (typical): money market (lowest credit/market risk), bond market (intermediate, depending on duration and credit quality), equity market (higher volatility and risk).

2. Step-by-step reasoning
- The money market definition focuses on maturity: instruments are short-term, usually under 12 months. Therefore any statement that ties money market instruments to maturities less than 1 year is consistent with standard finance definitions.
- The bond market is defined by longer maturities — generally over 1 year — so the correct pairing is money market <1 year and bond market >1 year.
- Compare each option against these definitions to determine correctness.

3. Calculations
- No numerical calculations are required; this is definitional classification based on maturity.

4. Why the correct answer is correct
- The statement "Money markets comprise debt securities with terms less than 1 year, bond markets comprise debt securities with terms greater than 1 year" matches standard textbook definitions and practical market conventions for instrument maturities and market segmentation.

5. Why the other options are incorrect
- Option 2: Incorrect — money market is not restricted to only prime credits nor to 1–10 year maturities (1–10 years are medium/long-term, not money market).
- Option 3: Incorrect — "preferred and common" describe equity, not bond categories.
- Option 4: Incorrect — money market does not comprise equity; it consists of short-term debt only.
- Option 5: Incorrect — the equity market generally has higher risk than money and bond markets; it is not the least risky.

6. Conclusion
The correct answer is: Money markets comprise debt securities with terms less than 1 year, bond markets comprise debt securities with terms greater than 1 year. This matches the provided answer.

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