Cash and cash equivalents are negotiable instruments which have a stable value and are highly liquid. Cash and Cash Equivalents is a phrase used often in the financial world.
Generally money market accounts are the most used cash equivalent. They are invested in currency, and their goal is to preserve the value of the the investor’s dollars. Money market accounts are basically completely liquid, and investors can even write checks and make ATM withdrawals from their money market accounts.
Cash equivalents must be highly liquid, meaning they can be converted to cash very quickly, and have a stable value, or a value closely tied to the desired currency. They can be further defined as high-quality, short-term debt securities which are uncorrelated with bonds.
Other examples include negotiable CDs, Commercial Paper, Fed Funds, Repurchase Agreements (“Repos”), and checks or bank notes. Other than the actual negotiable instruments, the accounts on a business’s ledger that can be treated as cash include checking accounts, savings accounts, receivables, and petty cash.
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