ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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What is a defining characteristic of the certificate of deposit?

It is non-negotiable
It acknowledges a loan to the bank
It is a negotiable instrument
It represents equity shares in the bank

The correct answer is: It is a negotiable instrument

A certificate of deposit (CD) is indeed a negotiable instrument, which allows the holder to transfer ownership before maturity. This characteristic is significant because it permits the buying and selling of CDs in the secondary market. When a CD is treated as a negotiable instrument, the owner can often transfer it to another party, facilitating liquidity and providing flexibility for investors. In contrast, being non-negotiable would limit its transferability, which is not applicable to CDs. While a CD does acknowledge a loan to the bank, thereby functioning more like a secured borrowing agreement for the bank rather than simply a receipt for deposited funds. Furthermore, it does not represent equity shares; rather, it represents a fixed-income investment that earns interest over a predetermined period, unlike equity shares, which signify ownership in the bank itself.