Compared to bonds, money market investments typically possess which characteristics?

• A. Lower liquidity and lower marketability
• B. Greater price volatility
• C. More sensitivity to interest rate changes
• D. Higher liquidity and higher marketability

Answer: (D)

The key idea here is liquidity and marketability. Money market investments are short-term, high-quality instruments designed for quick access to cash. They typically mature within a year and trade in deep, active markets with many buyers and sellers. That combination means you can buy or sell these instruments rapidly and with only small price moves, which is what we mean by high liquidity and high marketability. Bonds, on the other hand, usually have longer maturities and can trade in markets that aren’t as deep, so they don’t convert to cash as quickly or easily in all situations. They also tend to be more sensitive to interest rate changes, which can affect their price more than money market instruments. So, money market investments generally offer higher liquidity and higher marketability than bonds.