Cash Equivalents and Fixed Income Securities - Cash Equivalents

There are several types of cash equivalents:

  • Certificates of Deposit - CDs
    • While traditional CDs are not considered negotiable, large-denomination, short-term CDs purchased by institutional investors are often negotiable.
    • These are often issued in $1 million denominations, and there is an active secondary market.
    • Typically, the terms are from 14 days to a maximum of six months.
    • Due to their size, most individual investors take advantage of these equivalents by investing in a money market fund that buys these CDs.

Look Out!
Questions about negotiable CDs may include an option to define them as "callable." Many people with a brokerage background are aware that some negotiable CDs are callable, but for test purposes, it is assumed they are not. Any answer that includes "callable" as a characteristic is incorrect.

  • Money Market Funds
    • These are mutual funds that invest solely in low-risk, short-term cash equivalents, such as CDs, commercial paper, repurchase agreements, government securities and other very liquid securities.
    • Since these opportunities are generally available only in very high denominations, the best way to invest in these securities is via a money market fund.
    • Because of the short duration of these instruments, money markets are considered to be very low-risk.
    • Plus, they offer the convenience of check writing, so they are extremely liquid.

For more information on money markets, refer to the tutorial: The Money Market.

  • Commercial Paper
    • By definition, money market instruments mature in one year or less. But commercial paper, which is a major component of many money market funds, has a maximum maturity of up to 270 days.
    • These instruments are issued by corporations to finance accounts receivable and inventories; as such, they possess a higher risk than government securities and CDs.

  • Treasury bills
    • These are short-term (one year or less) obligations issued by the U.S. government.
    • They are the standard for the "risk-free" return, used as a point of comparison for all other investments.
    • Since their minimum denomination is $10,000, they are a great choice for individual investors.
    • They are sold at auction at a discount to face value - basically the price you pay is the face value minus your interest. You "earn" the interest when your bill matures at face value.
The Federal Reserve
Related Articles
  1. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  2. Professionals

    Who Needs to Take the Series 65?

    Most states require individuals to pass the Series 65 exam in order to act as investment advisors.
  3. Personal Finance

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  4. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  5. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  6. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  7. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  8. Professionals

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
  9. Professionals

    How To Answer Option Questions On The Series 7 Exam

    Learn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
  10. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  1. Series 6

    A securities license entitling the holder to register as a limited ...
  2. Series 79

    A examination to ensure a candidate is qualified to become a ...
  3. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  4. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  5. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  6. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  1. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  2. Do financial advisors have to be licensed?

    Financial advisors must possess various securities licenses in order to sell investment products. The specific products an ... Read Full Answer >>
  3. If I have only a limited amount of time to study for the Series 6, what should I ...

    The Series 6 Investment Company and Variable Contracts Products Representative Qualification Examination is administered ... Read Full Answer >>
  4. What role does the 'chip cycle' play in the electronics sector?

    There are several highly acclaimed private Series 6 Exam courses in the United States. Many can be completed online. Popular ... Read Full Answer >>
  5. What does passing the Series 6 enable me to do?

    The Series 6, or the Investment Company Products/Variable Contracts Limited Representative, exam is administered by the Financial ... Read Full Answer >>
  6. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!