ACCA Financial Management (F9) Certification Practice Exam

What market deals primarily with short-term loans raised by finance houses?

1. Inter-company markets

2. Finance house market

3. Money markets

4. Primary markets

The correct answer is: Finance house market

The finance house market is primarily associated with deals involving short-term loans raised by finance houses. These institutions specialize in providing financing solutions, often for shorter durations, catering to both consumers and businesses in need of immediate funding. In this context, short-term loans typically have a maturity of one year or less, aligning perfectly with the operations of finance houses, which are known for their agility in offering credit facilities. They play a crucial role in fulfilling the demand for quick access to capital, which is essential for managing liquidity and financing operational activities. While money markets also involve short-term borrowing and lending, they encompass a broader range of financial instruments and participants beyond just finance houses, including government securities, commercial paper, and certificates of deposit. Therefore, while the money market is a correct setting for short-term borrowing, the specific emphasis on finance houses makes the finance house market the most accurate description for the question. Primary markets refer to the issuance of new securities and do not revolve specifically around short-term financing arrangements. Inter-company markets typically involve transactions between subsidiaries and do not specifically focus on the short-term lending aspect synonymous with the finance house market. Hence, the finance house market distinctly highlights the niche of short-term loans facilitated by financial institutions dedicated to such lending practices.