ANSWER

Capital markets are a crucial component of the global financial system, facilitating the exchange of various financial instruments, including securities. Securities, in this context, refer to tradable financial assets that represent ownership or debt in a company or government entity. These instruments play a pivotal role in raising capital for businesses and governments, thereby enabling economic growth and development. Understanding the characteristics of securities and their life spans is essential for investors and market participants.

Securities traded in capital markets typically encompass a wide range of financial instruments, including stocks, bonds, and derivatives. One critical characteristic used to distinguish these securities is their life span, or in other words, the duration for which they are issued and traded in the market. This duration can have a significant impact on an investor’s risk-return profile and investment strategy.

To answer the multiple-choice question, securities that are dealt with in capital markets generally have a life span of more than one year. These are often referred to as long-term securities. Long-term securities play a vital role in enabling companies and governments to raise funds for various purposes, such as financing expansion projects, funding research and development, or servicing long-term debt obligations.

Long-term securities typically come in the form of stocks and bonds. Stocks represent ownership in a company and do not have a fixed maturity date, making them suitable for long-term investments. On the other hand, bonds are debt securities with a specified maturity date, usually ranging from a few years to several decades. Investors purchase bonds with the expectation of receiving periodic interest payments and the return of the principal amount upon maturity, making them well-suited for investors seeking stable income over an extended period.

Contrastingly, securities with a life span of one year or less are generally considered short-term instruments. Short-term securities are often used by investors and businesses to manage their liquidity needs. These instruments include Treasury bills, commercial paper, and certificates of deposit, among others. They offer a relatively lower risk but also provide lower returns compared to long-term securities.

The mention of securities with a life span of 90 days appears to be a specific time frame within the short-term category. Securities with such a short duration are often used in money markets, where participants engage in short-term borrowing and lending activities. Money market instruments, including Treasury bills and commercial paper, are highly liquid and serve as a means to park surplus funds or meet short-term funding requirements.

In conclusion, capital markets deal primarily with securities that have a life span of more than one year, which are commonly referred to as long-term securities. These instruments enable businesses and governments to secure long-term financing for their various needs. Short-term securities, including those with a 90-day life span, cater to more immediate liquidity and funding requirements and are typically found in money markets. Understanding the distinction between long-term and short-term securities is essential for investors and financial market participants to make informed investment decisions and effectively manage their financial resources.