ACCA Financial Management (F9) Certification Practice Exam

Which of the following is an example of a long-term financial instrument?

1. Commercial paper

2. Corporate bonds

3. Certificates of deposit

4. Overnight repurchase agreements

The correct answer is: Corporate bonds

Corporate bonds are indeed an example of a long-term financial instrument. They are issued by corporations to raise capital and typically have maturities that can range from several years to several decades. When an investor purchases a corporate bond, they are essentially lending money to the corporation in exchange for periodic interest payments and the return of the principal amount at maturity. This long-term nature makes corporate bonds suitable for funding long-term projects and capital expenditures, aligning with the issuer's needs for extended financing. Other instruments, such as commercial paper and overnight repurchase agreements, are typically classified as short-term financial instruments due to their shorter maturities and their purpose of meeting immediate funding needs. Certificates of deposit can vary in terms of duration but are commonly associated with shorter-term savings where funds are locked for a specified period, often less than a year. Thus, corporate bonds stand out as a long-term solution for financing, making them the correct choice in this scenario.