2.1 Cash and Cash Equivalents
Cash and money market instruments provide safety of principal and immediate liquidity, though they expose investors to purchasing power (inflation) risk and reinvestment risk.
Key NASAA Exam Takeaways
- Cash equivalents have maturities of 1 year or less at issuance, high liquidity, and negligible capital loss risk.
- Treasury Bills (T-Bills) are issued at a discount with maturities of 4, 8, 13, 17, 26, and 52 weeks.
- Commercial Paper is unsecured corporate promissory debt issued with a maximum maturity of 270 days to qualify for SEC registration exemption under Act of 1933 Section 3(a)(3).
- Negotiable Jumbo Certificates of Deposit (CDs) have minimum face values of $100,000 and trade in the secondary market.
Knowledge Checkpoint • Section 2.1
Why is commercial paper capped at a statutory maximum maturity of 270 days?