Marketable Securities

• To make the cut as a cash equivalent, a marketable security must be liquid or converted into cash. Marketable securities have durations of less than one year, have high trading volumes and sustain very little price fluctuations. Banker's acceptance, commercial paper, Treasury bills and other money market instruments are examples of marketable securities. Each of these instruments can easily be converted into cash and are often included as part of cash balances.
  
  

Banker's Acceptance

• A banker's acceptance is one of the world's oldest financial instruments and dates to the 12th century. Essentially, a banker's acceptance is an agreement to pay a specified amount of money to the holder on a specified date. In a banker's acceptance transaction, a bank agrees to accept or guarantee a future payment between two parties.
  
  

Commercial Paper

• Commercial credit is unsecured debt issued by corporations with high credit ratings for short-term funding needs. Commercial paper has a maturity of two days to 270 days. Because of the short duration and creditworthiness of its issuers, commercial paper has a lower interest rate than other debts.
  
  

Treasury Bills

• A Treasury bill (T-bill) is debt issued and backed by the United States government. T-Bills sell at a discount from the face value with terms ranging from a few days to 52 weeks. Instead of paying the par or face value of $1,000 T-bill, an investor pays $990 but receives $1,000 when the T-bill matures. The difference between what he pays for the T-bill and par value is the interest.
  
  

Other Money Market Instruments

• Money market instruments include certificates of deposit euro dollars, and repos. Euro dollars refer to U.S. dollar deposits held in foreign banks, usually in high denominations with a maturity of less than six months. A repo, or repurchase agreement, is a promise by the seller of a security or asset to buy it back later. Repos mature in one day to 30 days. Banks often use the repo market to lend to one another. Certificates of deposits, euro dollars and repos are safe investments and good proxies for cash.