Legal Definitions - cash equivalent

A cash equivalent is a type of short-term investment that is highly liquid and can be easily converted into cash. It is considered to be as good as cash because it can be quickly and easily converted into cash without any significant loss of value.

• Money market funds
• Treasury bills
• Commercial paper
• Certificates of deposit (CDs)

Money market funds are a type of mutual fund that invests in short-term, low-risk securities such as Treasury bills and commercial paper. Treasury bills are short-term government securities that are issued to finance the national debt. Commercial paper is a short-term debt instrument issued by corporations to finance their short-term cash needs. Certificates of deposit (CDs) are issued by banks and other financial institutions and offer a fixed rate of return for a specified period of time.

These examples illustrate the definition of cash equivalents because they are all highly liquid and can be easily converted into cash without any significant loss of value. They are also considered to be low-risk investments because they are short-term and have a high degree of creditworthiness.