A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

Question

Quizplus · Accepted Answer

The primary purpose of restricting the investment of idle cash balances to money market instruments is to carry a minimal amount of interest-rate risk. Money market instruments have a low maturity and low credit risk which minimizes the chances of fluctuations in their market value due to interest rate changes. This ensures the preservation of the principal amount invested and provides stability to the cash reserves of the entity. While obtaining government guarantees, minimizing transaction costs, and having a continual market for selling the investment could be additional benefits, they are not the primary purpose of investing in money market instruments.

A Primary Purpose of Restricting the Investment of Idle Cash