ACCA Financial Management (F9) Certification Practice Exam

What is the characteristic feature of non-negotiable securities?

1. They can only be traded on the stock exchange

2. They cannot be resold

3. They have higher liquidity than negotiable securities

4. They are always backed by cash

The correct answer is: They cannot be resold

Non-negotiable securities are characterized by their inability to be resold or transferred to other parties, which makes option B the correct choice. This restriction arises from the terms of the security itself, indicating that it is meant to be held by the original purchaser until maturity or redemption. In this context, such characteristics impact the transferability of the security, limiting its market use compared to negotiable securities, which can be freely traded. This lack of transferability often results in restricted liquidity for non-negotiable securities, contradicting the notion that they would have higher liquidity than negotiable ones, as indicated in option C. Option A is inaccurate because non-negotiable securities are not necessarily limited to trading on stock exchanges; they can involve other forms or channels of investment that do not require being listed or traded publicly. Lastly, the assertion in option D that they are always backed by cash is not universally true, as the backing of non-negotiable securities can vary widely depending on the specific security and its terms. Therefore, while non-negotiable securities might have cash backing in certain cases, it is not a defining feature of all such securities.