US CMA Part 2 · Chapter 4 · Question 6 of 15
A treasurer is choosing a short-term investment for temporary excess cash that may be needed at short notice. Which characteristics are most important?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) High liquidity and low default risk, such as US Treasury bills
Explanation
Marketable securities held as a cash substitute should be safe and quickly convertible to cash with little price risk. Treasury bills and similar money market instruments meet these criteria. Long-maturity bonds and equities expose the company to interest rate and market price risk that is inappropriate for temporary cash balances.
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