Module: | Primary Categories & SPPI Rules
Q2: Which of the following statements regarding the classification of similar securities are correct?
1. Securities acquired in the same lot at the same time can be classified under different categories (e.g., HTM and AFS).
2. The classification depends on the objective with which the security was acquired.
3. The objective for acquisition must be clearly established and documented before or at the time of acquisition.
4. Once a security is classified as HTM, it cannot be used for any liquidity purposes.
2. The classification depends on the objective with which the security was acquired.
3. The objective for acquisition must be clearly established and documented before or at the time of acquisition.
4. Once a security is classified as HTM, it cannot be used for any liquidity purposes.
✅ Correct Answer: B
Statements 1, 2, and 3 are correct.
Banks may acquire a single lot of securities with mixed objectives.
Therefore, even identical securities bought at the same time can be split between categories like HTM and AFS, provided this objective is documented at inception.
Statement 4 is incorrect because, in the context of Investment Classification MCQs, HTM securities can be utilized for liquidity through repo transactions.
Banks may acquire a single lot of securities with mixed objectives.
Therefore, even identical securities bought at the same time can be split between categories like HTM and AFS, provided this objective is documented at inception.
Statement 4 is incorrect because, in the context of Investment Classification MCQs, HTM securities can be utilized for liquidity through repo transactions.