Cash Equivalents

Asset Classes within the Financial Markets

Cash and Cash Equivalents Defined

Cash and cash equivalents (CCE) are the most liquid current assets found on a business’s balance sheet. Cash equivalents are investments securities that are meant for short-term investing; they have high credit quality.

Cash equivalents are easily convertible into a known cash amount. An investment normally counts to be a cash equivalent when it has a short maturity period of 90 days or less, and can be included in the cash and cash equivalents balance from the date of acquisition when it carries an insignificant risk of changes in the asset value; with more than 90 days maturity, the asset is not considered as cash and cash equivalents.

Equity investments mostly are excluded from cash equivalents, unless they are essentially cash equivalents, for instance, if the preferred shares are acquired within a short maturity period and with specified recovery date.

One of the company’s crucial health indicators is its ability to generate cash and cash equivalents. So, a company with relatively high net assets and significantly less cash and cash equivalents can mostly be considered an indication of non-liquidity. For investors and companies, cash and cash equivalents are generally counted to be “low risk and low return” investments and sometimes analysts can estimate company’s ability to pay its bills in a short period of time by comparing CCE and current liabilities. Nevertheless, this can happen only if there are receivables that can be converted into cash immediately.

However, companies with a big value of cash and cash equivalents are targets for takeovers (by other companies), since their excess cash helps buyers to finance their acquisition. High cash reserves can also indicate that the company is not effective at deploying its CCE resources, whereas for big companies it might be a sign of preparation for substantial purchases. The opportunity cost of saving up CCE is the return on equity that company could earn by investing in a new product or service or expansion of business.

What counts as cash?

  • Currency

A currency is defined as a system of money (monetary units) in common use, especially for people in a nation. Under this definition, U.S. dollars (US$), euros (€), Japanese yen (¥), and pounds sterling (£) are examples of currencies. These various currencies are recognised as stores of value and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance.

  • Coins

coin is a small, flat, and usually round piece of metal or plastic used primarily as a medium of exchange or legal tender.

Coins are usually metal or an alloy, or sometimes made of manmade materials. They are usually disc shaped. Coins made of valuable metal are stored in large quantities as bullion coins. Other coins are used as money in everyday transactions, circulating alongside banknotes. Usually the highest value coin in circulation (excluding bullion coins) is worth less than the lowest-value note.

  • Bank Overdrafts

Bank overdrafts normally are considered as financing activities. Nevertheless, where bank borrowings which are repayable on a demand form an integral part of company’s cash management, bank overdrafts are considered to be a part of cash and cash equivalents.

  • Savings Accounts

Cash in saving accounts is generally placed in there for the purpose of preventing it from being used for daily expenses.

  • Current/Check/Cheque Accounts

Cash in current/check/cheque accounts allow you to write checks/cheques and use contactless and electronic debit to access funds in the account.

  • Money Order

A Money Order is explained as a financial instrument issued by a government or a financial institution which is used to receive cash on demand. The advantage of money orders over checks/cheques is that it is more trusted since it is always paid in advance. They are acceptable for payment of personal or small business’s debts and can be purchased for a small fee at many locations such as a post office or grocery store.

  • Petty Cash

Petty cash is a small amount of cash that is held close at hand in the business to be used for payment of insignificant expenses and the amount of it may vary depending on the organisation.  Petty cash values range from $50 to $200 depending on the type of organisation. Petty cash funds must be safeguarded and recorded in order to avoid thefts. Often there is a custodian appointed who is responsible for the documentation of petty cash transactions.

What counts as a cash equivalent?

  • Treasury Bills

Treasury bills, also called “T-bills”, are a security issued by the U.S. Department of Treasury. Purchasing T-bills lends money to the U.S. government. T- bills are sold in denominations of $1000 up to maximum amount of $5 million and generally they do not pay any interest rates, but are sold at a discount, their yield being the difference between purchase price and redemption value.

  • Commercial Papers

A Commercial Paper is a bearer document which is typically used by larger companies to receive funds to answer short-term debt obligations like an organisations’ payroll. They are supported by issuing banks or other companies that promise to fulfil and pay the face amount on the designated maturity date provided on the note.

  • Marketable Securities

Marketable securities are financial assets and instruments that can easily be converted into cash and are therefore very liquid. Marketable securities are liquid because maturities tend to happen within one year or less and the rates at which these may be traded have minimal effect on prices. These securities are mostly traded on a public exchange due to their ready price availability. There are two forms of Marketable Securities: Marketable Equity Securities and Marketable Debt Securities.

  • Money Market Funds (MMF)

Money market funds are like cheque/checking accounts that mostly pay higher interest rates generated on deposited funds. Money market funds provide an efficient and effective tool for companies and organisations to manage their money since they tend to be more stable compared to other types of funds like mutual funds. Net asset Value (NAV) of Money Market funds remains stable compared to other mutual funds and its share price is constant: $1.00 per share. For businesses, non-profit organisations and many other institutions MMF are very effective “vehicle” for cash management.

  • Short-term Government Bonds

Short-term government bonds are provided by governments to fund government spending – usually on major projects. These are issued using the country’s own domestic currency. Before investing into government bond investors should take into account political risk, inflation and interest rate risk.

If you would like to know more about some of the common terms within the Financial Markets sector than please feel free to explore our Glossary of Terms

Currency (FX) Markets 

Typical Jobs in Cash and Cash Equivalents – CCE

  • Chief Investment Officer (CIO)
  • Forex Trader
  • Investment Broker
  • Portfolio Manager
  • Investment Manager
  • Compliance Manager
  • Quantitive Developer
  • Research Analyst
  • Product Manager
  • Finance Manager
  • Accounting
  • Banking Operations
  • Banking Sales
  • Reporting Analyst
  • Treasury
  • Underwriter
  • Loan Originator
  • Sales Manager
  • Marketing Manager
  • Collections Officer

These are just a few examples of cash and cash equivalents jobs and positions we recruit for; other positions are available.

To see our latest cash and cash equivalents jobs and vacancies, please click here

Find out more about Asset Classes in the Financial Markets

Typical investments: Bonds, debentures, gilt-edge bonds

Risk profile: Low

Fixed-interest investments — sometimes known as fixed-rate securities — are an asset class that sees investors loan their money to a company or government in exchange for a security, in the form of a bond or similar product, that pays an agreed rate of interest. This rate remains the same throughout the duration of the investment. When the investment matures, you’ll also be paid back the original amount you put in.

Read more about Fixed Income here

Typical investments: Purchase of equity in a company listed on the stock exchange

Risk profile: Medium to high

When you buy shares — also known as equities — you are buying a small portion of ownership in a company. Each share represents a unit of ownership, so the company value is divided by the number of shares to give the share price. Shares are traded on the stock market, where the daily value of each company’s shares are listed.

There are a number of factors, such as if the company does well or undergoes a merger, that can cause the value of a business to increase and boost the worth of each share. On the other hand, if the company does badly, the shareholders can face a drop in the worth of their shares. 

Find out more about Equities here

Typical investments: Physical currency, bank accounts, savings accounts, cash ISAs

Risk profile: Low

Cash is the asset class that you’re probably most familiar with, as we use it on a daily basis to pay for goods and services. The asset class for cash includes physical currency, the balances of savings and current accounts, cash ISAs, premium bonds, and money market funds.

Read more about Cash Equivalents here.

Typical investments: Commodity futures, Stock index futures, Currency futures, Precious metal futures, Treasury futures.

Risk profile: Medium

Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.

Underlying assets include physical commodities or other financial instruments. Futures contracts detail the quantity of the underlying asset and are standardised to facilitate trading on a futures exchange. Futures can be used for hedging or trade speculation.

Find out more information on Futures here

Typical investments:, commodities, currencies, interest rates, market indexes, and stocks.

Risk profile: Medium to high

A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).

Generally belonging to the realm of advanced investing, derivatives are secondary securities whose value is solely based (derived) on the value of the primary security that they are linked to. In and of itself a derivative is worthless.

Find out more about Derivatives here.

Typical investments: Oil, coffee, gold

Risk profile: High

Commodities are raw materials that are bought and sold on global markets where supply and demand, as well as other global issues, dictates the price. They can include fuels like oil and gas; precious metals like platinum, gold and silver; agricultural products like wheat, coffee, and dairy products; industrial metals like copper, iron, and steel; as well as many other things. A lot like shares, commodity markets regularly rise and fall, but they tend to be much more volatile.

Find out more about Commodities here

Typical investments: Buying your own home or a holiday home, investing in buy-to-let and commercial projects.

Risk profile: Medium

Investing in property can take many forms, such as buying your own home or getting involved in commercial property, like offices, warehouses, and retail space. There are opportunities to invest in both small and large-scale projects, ranging from a single buy-to-let to joining an investment fund that owns large-scale commercial sites. 

Find out more about Real Estate here

Typical investments: Cryptocurrency, Art and antiques, wine, watches, peer-to-peer lending

Risk profile: Low to high depending on investment

Aside from the main five asset classes, there are other areas that you can invest in to really add diversity to your portfolio, though it’s worth remembering that each will have its own levels of risk and reward that you should research. 

Although these fall outside of the traditional asset classes, many alternative types have been traded in for a very long time. Art, antiques, stamps, watches, wine, and jewellery are all examples of valuables that have been traded for centuries. On the other hand, there are many new asset classes that have only emerged in the last few years, such as cryptocurrencies and peer-to-peer lending, demonstrating just how diverse the investments marketplace can be. 

To find out more about alternative investments here

Contact Us

FINCO Search is a specialist headhunter and recruitment agency to the global wealth management, private banking, financial markets and compliance sectors.  

With offices in London and Stevenage we provide a full UK and International service across executive finance, wealth and asset management, compliance and private banking.

FINCO Search is experienced across all currency and banking markets.  Our consultants have successfully managed mandates for C-suite roles, traders, brokers and operational/technical personnel in the European and US markets. 

If you are interested in finding out how we can assist you in finding your next opportunity in the global currency and banking space, or are growing your sales, trading or operations team and looking to onboard currency and banking specialists across any front, middle or back office position, then please call us now.

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