Advanced Diploma of Financial Planning (ADFP) Practice Test

Which of the following is included in money market mutual funds?

1. Long-term corporate bonds

2. High-yield savings accounts

3. Commercial paper

4. Private equity investments

The correct answer is: Commercial paper

Money market mutual funds are investment vehicles that typically invest in short-term, low-risk financial instruments. Commercial paper, which is a form of unsecured, short-term debt issued by corporations to finance their immediate operational needs, fits perfectly within the investment strategy of money market funds. These funds aim to provide liquidity while offering returns that are typically higher than those of a regular savings account but lower than long-term investments. Since commercial paper is usually issued with maturities ranging from a few days to a year, it aligns well with the nature of money market funds, which focus on security and capital preservation in highly liquid, short-term assets. On the other hand, long-term corporate bonds represent a different risk profile and investment horizon, as they are designed for longer-term investment, which varies from the typical money market strategy. High-yield savings accounts do not constitute a direct investment within a money market mutual fund, although both may focus on safety and liquidity. Private equity investments are inherently illiquid and typically involve much longer holding periods, which contrasts sharply with the short-term focus of money market funds.