CFA Practice Question

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CFA Practice Question

In the market for money, money and bonds are ______.

A. complements
B. the same item
C. substitutes
D. unrelated
Correct Answer: C

User Contributed Comments 9

User Comment
SkinsFan "In the short-term market for money" is the key, otherwise the answer would depend on the term of the bond.
chamad still confused. Are market for money and money market same. Does this latter refer to Short run? Than what about long term bonds?
ilgibe think about the inverse relationship Bond price - interest rate and the inverse relationship money demand - interest rate.

if interest retes are falling, then bond prices are higher: a higher opportunity cost of holding money.
Gooner7 KISS: to own a bond, you have to BUY IT with either you have $100 in cash or own a $100 bond (SUBSTITUTES)
hoyleng thanks ilgible. inverse relationship is the key word.!
johntan1979 Actually, the inverse relationship between money and bond's reasoning should be:

Higher interest rates --> Lower quantity of money demanded --> Higher demand for bonds --> Higher bond prices --> Lower interest yield for the bond --> Equilibrium restored
bidisha nice explanation johnthan1979!
Inaganti6 Johntan1979 is the kind of guy who doesn't have to play to win the championship ...
choas69 i noticed it too LOL xD
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