Looking for the answer to the question below related to Financial Management ?
None marketable financial assets include
|A. fixed deposits in banks
B. fixed deposits in NBFCs
C. postal deposits
D. all of these
The Correct Answer Is:
- D. all of these
The correct answer is D. all of these. All the options listed in the question, including fixed deposits in banks, fixed deposits in Non-Banking Financial Companies (NBFCs), and postal deposits, are examples of non-marketable financial assets. Let’s discuss why this is the correct answer and why each of the other options is also considered a non-marketable financial asset:
D. All of these:
Non-marketable financial assets refer to financial instruments or investments that cannot be easily bought or sold in a secondary market, such as a stock exchange or bond market. These assets typically have limited or no liquidity, meaning they cannot be quickly converted into cash at prevailing market prices.
All the options listed in the question, namely fixed deposits in banks, fixed deposits in NBFCs, and postal deposits, fall under the category of non-marketable financial assets because they share common characteristics:
1. Fixed Deposits in Banks:
Fixed deposits in banks involve depositing a lump sum of money with a bank for a predetermined period, typically ranging from a few months to several years. In return, the depositor receives a fixed interest rate on the principal amount.
While fixed deposits offer safety and predictability in terms of returns, they are considered non-marketable because they cannot be easily traded or sold in a secondary market. To access the funds before maturity, depositors may need to break the fixed deposit, which may result in penalties or loss of interest.
2. Fixed Deposits in NBFCs:
Fixed deposits in Non-Banking Financial Companies (NBFCs) share similarities with bank fixed deposits. NBFCs are financial institutions that provide various financial services, including accepting fixed deposits from individuals and entities.
Like bank fixed deposits, NBFC fixed deposits offer a fixed interest rate for a specific tenure. However, these deposits are also non-marketable due to their limited liquidity, as they cannot be traded in a secondary market like stocks or bonds.
3. Postal Deposits:
Postal deposits, also known as post office deposits, are offered by government-operated postal departments in many countries. These deposits include schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), and Monthly Income Scheme (MIS).
While they provide attractive interest rates and safety, postal deposits are non-marketable because they are not actively traded in financial markets. Accessing funds prematurely may involve specific rules and penalties, making them less liquid than marketable securities.
Now, let’s briefly explain why the other options are not correct:
A. Marketable Financial Assets:
Marketable financial assets are investments that can be readily bought or sold in secondary markets. Examples of marketable financial assets include stocks, bonds, mutual fund shares, and exchange-traded funds (ETFs). These assets are highly liquid, with prices determined by supply and demand in financial markets.
Investors can buy and sell them at prevailing market prices. Fixed deposits in banks, fixed deposits in NBFCs, and postal deposits, as discussed earlier, do not fall into this category because they lack the liquidity and ease of transferability associated with marketable assets.
In summary, the correct answer, D. all of these, accurately identifies fixed deposits in banks, fixed deposits in NBFCs, and postal deposits as examples of non-marketable financial assets. These assets provide safety and stability but are not suitable for investors seeking high liquidity or the ability to trade their investments in secondary markets.
Marketable financial assets, on the other hand, offer greater liquidity and are actively traded in financial markets, making them more suitable for investors looking for easily tradable and liquid investments.