Definition
Marketable Securities Examples refer to investments that can be easily converted into cash due to their high liquidity. These might include Treasury bills, common stock, or short-term debt instruments like commercial paper. Other examples are money market instruments, bonds or debenture, and preferred stock that can quickly be sold in a public market.
Key Takeaways
- Marketable securities are highly liquid assets that can be converted into cash quickly. Examples include treasury bills, commercial papers, money market instruments, and stocks.
- These assets also offer an opportunity for organizations to earn interest or profit through dividends while holding onto cash reserves. They are usually short-term, with maturity periods less than a year, and are often traded on major exchanges or over-the-counter.
- One of the most beneficial characteristics of marketable securities is their flexibility and accessibility. Companies and individuals can buy or sell them without causing a major impact on their price. Moreover, they help companies to maintain liquidity while reaping a financial gain.
Importance
The term “Marketable Securities Examples” is important in finance because it provides concrete instances of liquid assets that companies can quickly convert into cash. These examples help businesses, investors, and other financial entities to identify potential short-term investments they might make or currently hold.
Some examples include government bonds, treasury bills, commercial papers, and common stocks. Understanding these examples is crucial as it enables companies to manage their liquidity needs effectively, promote diversification, and achieves greater financial stability by promptly responding to any unforeseen expenses or financial obligations.
Therefore, the knowledge and identification of marketable securities examples constitute vital aspects of financial planning and analysis.
Explanation
Marketable securities play a vital role in corporate finance by providing liquidity and short-term investment strategies. They are highly liquid assets that companies purchase with the intention of short-term holding. The key purpose here is to provide a store of value that firms can quickly convert back into cash whenever there is a need.
This aspect makes them an essential component in managing a company’s cash flow. They are used as a means to strategically invest the surplus cash, rather than letting it sit idle, while ensuring that the cash is readily available when required. Another significant application of marketable securities lies in diversifying a portfolio for companies.
Dealing with these securities helps them to spread the investment risk. It allows companies to invest in various financial instruments, such as government bonds, corporate bonds, or shares of different companies, thereby spreading the risk. They also serve as a reservoir of liquidity for companies during unstable financial climates.
Essentially, these securities provide companies with flexibility, giving them an option for a short-term investment that can be easily liquidated during a cash crunch.
Examples of Marketable Securities Examples
Treasury Bills: also known as T-Bills, these are marketable debt obligations issued by the U.S. Department of Treasury. They are considered one of the safest investments and functionalities like a short-term loan to the government.
Commercial Papers: These are short-term unsecured promissory notes issued by corporations. They are typically issued for the financing of accounts receivable, inventories and meeting short-term liabilities.
Stocks and Bonds: Stocks are shares in the ownership of a company representing a claim on part of the company’s assets and earnings. Bonds are debt securities, under which the issuer owes the holder a debt and is obliged to pay them interest, or to repay the principal at a later date.
FAQ – Marketable Securities Examples
What are Marketable Securities?
Marketable securities are liquid financial instruments which can be quickly converted into cash at a reasonable price. They are often classified into two categories: equity or debt securities. Equity securities represent ownership interest held by shareholders in an entity (a company, partnership or trust) while debt securities are financial instruments acknowledging a debt.
Can you provide examples of equity securities?
Equity securities include common stocks, preferred shares, and equity investments. Common stocks represent ownership in a company and a claim on part of the company’s profits or losses. Preferred shares are a type of stock which may pay dividends before dividends on common stocks are paid. Equity investments typically refer to the buying and holding of shares in a stock market by individuals and firms in anticipation of income from dividends and capital gains.
What are examples of debt securities?
Examples of debt securities include government and corporate bonds, certificate of deposit (CD), preferred securities which are debt-like and money market instruments. Bonds are investment instruments where an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period of time at a fixed interest rate. CDs are offered by banks and usually offer a higher interest rate than a regular savings account. Money market instruments are highly liquid and are safe investments which provide return in the form of interest.
What makes a security marketable?
A security is considered marketable if it can be bought or sold quickly and easily on a public exchange without impacting its price. Marketable securities are highly liquid and tend to have maturities of one year or less.
Related Entrepreneurship Terms
- U.S. Treasury bonds
- U.S. Treasury bills
- Savings bonds
- Commercial paper
- Money market funds
Sources for More Information
- Investopedia is a website that provides a vast amount of information on finance and investing, including detailed explanations of marketable securities.
- Corporate Finance Institute offers a wide range of resources and courses related to finance, including sections on the topic of marketable securities.
- Financial Express offers news and information about finance and economics, including articles and features on marketable securities.
- Accounting Tools provides resources for accounting professionals and students, including content on marketable securities and their role in accounting.
