ACCA Financial Management (F9) Certification Practice Exam

What is the main function of local authority markets?

1. To issue and sell long-term bonds

2. To borrow short-term funds through debt instruments

3. To facilitate foreign investment

4. To support major banking institutions

The correct answer is: To borrow short-term funds through debt instruments

The primary function of local authority markets is to borrow short-term funds through various debt instruments. Local authorities, such as municipalities or regional governments, often require financing for their operational needs, capital projects, or temporary cash shortfalls. This type of borrowing is frequently facilitated through instruments like treasury bills or specific types of loans designed for short-term needs. Local authority markets play a crucial role in providing these entities with the liquidity necessary to fund day-to-day operations or seasonal variations in cash flow, enabling them to maintain public services without interruption. Investors in these markets are generally more focused on the security and shorter duration of the debt instruments, which aligns with their investment strategies. While the other options might pertain to other forms of financial markets or institutions, they do not encapsulate the fundamental purpose of local authority markets as accurately. Long-term bonds would typically fall under municipal bond markets rather than being the primary function of local authority markets. Foreign investment and support for banking institutions are related to broader capital markets and financial systems, diverging from the specific activities of local authorities in short-term borrowing.