What are Cash Equivalents?
The cash equivalent is defined as safe investments that carry such a low amount of risk that the outcome is virtually ensured. There are a number of different types of investments that may be properly identified as cash equivalents. Cash equivalents tend to be easily converted into cash if necessary, and may be used as collateral in some cases. Interest bearing investments are one of the best examples of cash equivalents. Within this group, such items as Treasury bills and money market funds are common types of this sort of asset. Short-term municipal bonds, especially those with a maturation date of three months, are often understood to be cash equivalents. With the operation of a business, outstanding Accounts Receivable balances are considered to be cash equivalents. In fact, there are a number of services that will lend troubled companies the face value of the invoices generated at a given billing period, and use the payments of the invoices to pay off the loan. Generally, the lend
Cash equivalents are short-term investments that typically offer a high degree of liquidity. These include U.S. Treasury bills (T-bills) and money market funds. A T-bill is a short-term, discounted security issued by the U.S. government. The U.S. government guarantees to pay you a specific interest rate if you hold the T-bill to maturity. This is a specified future date, in this case one year or less, although securities considered cash equivalents most often mature in three months or less. The drawback of short-term investments is that they often carry a low interest rate. While they’re relatively safe places for cash—that is, they help preserve principal—they aren’t likely to help you grow your money significantly over time compared to the potential growth of stocks and bonds. A money market fund is a low-risk mutual fund that invests in short-term securities, such as T-bills. Money market funds allow you to withdraw money when you see fit, and many offer check-writing privileges. Mo
