Question

Design a comprehensive investment plan for a person seeking advice on short-term investment options, outlining three specific instruments of the money market that can be recommended for short-term investments. Provide detailed explanations for each instrument, their benefits, and how they can effectively aid this person achieve their financial goals.

Answer 1

1. Treasury Bills (T-Bills): Treasury Bills are short-term debt instruments issued by the government to raise funds for a short duration, usually ranging from 91 days to 364 days. They are considered one of the safest investments as they are backed by the government's creditworthiness. 

2. Commercial Paper (CP): Commercial Paper is an unsecured, short-term debt instrument issued by corporations to meet their short-term funding needs, usually for up to 270 days. CPs are rated by credit rating agencies to assess their creditworthiness. Compared to T-Bills, CPs generally offer higher returns due to the credit risk associated with corporations. 

3. Certificate of Deposit (CD): Certificate of Deposit is a time deposit offered by banks with fixed maturity dates, ranging from a few weeks to several months. CDs have higher interest rates than regular savings accounts and are insured by the government up to a certain limit.