ACCA Financial Management (F9) Certification Practice Exam

In the context of interbank markets, what do banks typically exchange?

1. Long-term loan agreements

2. Short-term funds

3. Foreign investment securities

4. Equity shares

The correct answer is: Short-term funds

In the context of interbank markets, banks typically exchange short-term funds. The interbank market is primarily focused on the lending and borrowing of funds between banks, often to manage liquidity and meet regulatory requirements. These transactions frequently happen over periods ranging from overnight to a few weeks, making short-term funds the main focus of these exchanges. Banks engage in this trading to balance their reserves — for instance, a bank facing a temporary shortage in cash may borrow from another bank that has excess reserves. This mechanism is essential for maintaining stability in the broader financial system, ensuring that all banks have the liquidity they need to operate effectively. While long-term loan agreements, foreign investment securities, and equity shares are important aspects of the financial system, they are not the primary focus of interbank market activities. Long-term loans usually involve more formal agreements with larger sums and longer durations, while foreign investments and equity share transactions take place in different market contexts rather than within the interbank market.