cash equivalents?

Question

I wish to know about cash equivalents in details. Web links related to this are also wished to welcome.

Answer 1

What are they?

Cash equivalents, often used to fund a cash reserve, are vehicles that are considered safe and are highly liquid (i.e., you can convert them to cash quickly if needed). Thus, cash equivalents can fulfill a role for virtually everyone, investors and non-investors alike. There are a variety of cash equivalent investments, each with distinctive strengths and tradeoffs, and varying degrees of risk.

Cash equivalents include the following:

Savings accounts
Money market deposit accounts
Money market funds
Certificates of deposit
Guaranteed investment contracts (GICs)
Government savings bonds
U.S. Treasury bills
Eurodollar certificates of deposit
Commercial paper
Face amount certificates
Strengths

You can use cash equivalents for a variety of purposes:

1. To provide relative stability. While cash equivalents can't assure you of a gain or protect you from losses, they are generally considered safer than other types of investments such as stocks or bonds.
2. To earn income on cash that would otherwise be idle. Most cash equivalents pay interest, which may help to reduce the effects of inflation.
3. To maintain a ready source of cash to pay for goods or services, such as a down payment on a home or car, a new washing machine, or a family vacation.
4. To meet unexpected demands on cash, such as repairing storm damage to your home or other financial emergencies.
5. To serve as a temporary parking place for assets when you're not sure where to put your money
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Answer 2

Cash equivalents are highly liquid items with a short maturity. Typical items that are considered cash equivalents include government bonds and corporate paper.

Usually to be a cash equivalent there is a time limit on the maturity of bonds, usually 3 months. As such, CD's, restricted money market accounts, restricted cash (including sinking funds for bonds), and long term bonds are often not considered a cash equivalent, but depending on their expected maturity, may be considered a current asset.

Answer 3

cash equivalents are considered cash because it can be easily converted into cash at a relatively short period of time. and once presented for payment on demand it will be honored. example is money ordey or treasury warrants.

Answer 4

Magical Mike explained it beautifully.