What provide yields competitive with commercial paper, are interest-bearing instruments issued by banks?

Question

Options

• AMoney market
• BDeposit-Draft
• CCertificates of deposit
• DMutual funds

• B
  5% (1)
• C
  85% (17)
• D
  10% (2)

Explanation

Certificates of deposit (CDs) are interest-bearing instruments issued directly by banks that offer yields competitive with commercial paper, making them a popular short-term investment for corporations and individuals seeking better returns than standard savings accounts.

Why the distractors are wrong:

• A. Money market - "money market" refers to the broad market category of short-term debt instruments, not a specific instrument itself; CDs are part of the money market.
• B. Deposit-Draft - this is not a standard financial instrument; it's a fabricated distractor.
• D. Mutual funds - mutual funds are pooled investment vehicles managed by fund companies, not instruments issued by banks, and they carry market risk rather than a fixed interest rate.

Memory tip: Think CD = Bank-Born. Certificates of deposit are created and issued by banks, they pay fixed interest, and they compete with commercial paper for short-term corporate cash. If a question mentions "bank-issued + interest-bearing + competitive yield," the answer is CDs.

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