Question

2. A firm that chooses to finance a new plant by issuing money market securities
____
A)   Is more likely to profit if interest rates rise while the plant is being constructed
B)   Is less likely to benefit from falling interest rates
C)   Incurs the cost of reissuing securities
D)   None of the above

Answer 1

The correct answer is

C)   Incurs the cost of reissuing securities

The money market securities are for a short-term period, normally less than a year so it has to incur the cost re-issue of securities again and again.

There is very low probability that interest rate will change significantly in the very short-term from current rate which can either generate loss or profit for the company hence other options are not correct, although if interest rate rise then the next money market security instrument will be issued at higher rates.