What is a "money market instrument"?

A "money market instrument" refers to a class of financial instruments that are characterized by short maturities, typically less than one year, and are designed to provide a low-risk investment option. These instruments include treasury bills, certificates of deposit, commercial paper, and repurchase agreements. The main purpose of money market instruments is to provide liquidity and preserve capital, making them an appealing choice for investors looking for safer, short-term investment opportunities.

The correct answer highlights the key features of money market instruments—short maturity and low risk— which are crucial to their functioning in the financial markets. Investors generally favor these instruments during times of economic uncertainty due to their stability and liquidity. This makes them an ideal vehicle for managing cash reserves or short-term needs without exposing funds to significant risk.

In contrast, the other options either mischaracterize money market instruments or describe different categories of investments entirely. For example, long-term investments typically involve greater maturity and risk, while high-yield options often come with increased volatility, which is the opposite of what money market instruments represent. Lastly, the notion of requiring government approval pertains to regulated securities but does not specifically define money market instruments.