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What type of financial instrument is a certificate of deposit (CD)?

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Question: What type of financial instrument is a certificate of deposit (CD)?

Options:

  1. Equity security
  2. Debt security
  3. Derivative
  4. Currency

Correct Answer: Debt security

Solution: 

A certificate of deposit (CD) is a debt security issued by banks to raise funds from depositors.

What type of financial instrument is a certificate of deposit (CD)?

Practice Questions

Q1
What type of financial instrument is a certificate of deposit (CD)?
  1. Equity security
  2. Debt security
  3. Derivative
  4. Currency

Questions & Step-by-Step Solutions

What type of financial instrument is a certificate of deposit (CD)?
  • Step 1: Understand that a certificate of deposit (CD) is a type of savings account offered by banks.
  • Step 2: Know that when you put money in a CD, you are lending it to the bank for a fixed period of time.
  • Step 3: Realize that the bank pays you interest for using your money during that time.
  • Step 4: Recognize that a CD is considered a debt security because the bank owes you the money you deposited plus interest.
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