Definition and Examples of Cash Equivalents

Calvin (Cal) Boender, owner of North Development Company in Chicago, has directed the firm's investments since its inception. In 2006, Calvin Boender oversaw its diversification into cash-equivalent investments.

1. Definition and Examples of Cash Equivalents By Calvin Boender

2. Introduction Calvin (Cal) Boender , owner of North Development Company in Chicago, has directed the firm's investments since its inception. In 2006, Calvin Boender oversaw its diversification into cash-equivalent investments. A cash equivalent describes an investment that is close to availability for withdrawal. To be considered a cash equivalent, an investment must be easily convertible to cash revenue, which means that any maturity date must be within three months of the product's classification, as there is little chance of devaluation within that period.

3. Common Cash Equivalent Products Common cash equivalent products in today's market include commercial paper, money market funds, and Treasury bills. Money market funds tend to be the simplest to understand, as they function much like checking accounts, though with higher interest. By contrast, commercial paper is a notes-receivable product, although it reaches maturity in under 270 days, meaning that commercial paper becomes cash equivalent faster than many other products.

4. Conclusion Similarly, Treasury bills come from the US Treasury and mature in a maximum of one year. A business or individual may invest in one or more of these products to attempt to secure returns from otherwise nonproducing cash reserves.