A primary purpose of restricting the investment of idle cash balances to money market instruments is to:
A) obtain government guarantees on the investment.
B) minimize transaction costs.
C) minimize interest-rate risk.
D) maximize possible capital appreciation.

Question

Quizplus · Accepted Answer

The primary purpose of restricting the investment of idle cash balances to money market instruments is to minimize interest-rate risk. Money market instruments are short-term securities with low default risk and are less affected by interest rate movements, making them a safe investment option for idle cash balances. Minimizing interest-rate risk is important for the preservation of capital and the stability of returns. A, B, and D are not the primary purposes of investing in money market instruments.

A Primary Purpose of Restricting the Investment of Idle Cash