High liquidity may be necessary for a variety of reasons. Since there is little to no default risk, the holding duration is often brief, and liquidity is strong, the risk-free rate is a suitable reward. People who need liquidity frequently will invest in a variety of near-money assets, including Treasury Bills, money market funds, and high-yield savings accounts.Īll of these assets produce results that are close to the risk-free rate. Investors who are less capable of taking risks or less willing to do so will devote more of their portfolio to highly liquid assets, such as cash equivalents. It is helpful when adjusting portfolios for individual investors based on their degrees of risk tolerance. It is used in many fields, including wealth management, corporate liquidity, and the money supply. Since then, bank notes and deposits that may be transferred by check have appeared.Īmong less liquid assets, everything the owner has that may be converted into cash nearly instantly is seen as near money. Most people accepted gold and silver coins as currency up to the 18th century. Saving accounts, certificates of deposit ( CDs), foreign currency, money market accounts, marketable securities, and Treasury Bills are a few examples of near-money assets. Transaction costs or withdrawal penalties may potentially be other variables impacting near money. The liquidity of foreign currencies will change depending on the actual conversion times. In general, this term refers to all of an entity's highly liquid funds together. The idea of cash equivalents is used by central banks and economists to determine the various levels of the money supply, with the proximity of cash equivalents used as a criterion for categorizing assets as M1, M2, or M3 assets. The examination of cash equivalents may be useful in all forms of wealth management since it serves as a gauge for risk, conversion of cash equivalents, and cash liquidity.įor many years, quasi-money has had a significant impact on financial research and economic issues.įor evaluating liquidity, financial analysts see near money as a key notion. To analyze corporate financial statements and control the money supply, it is crucial to comprehend quasi-money. Various market situations take near money into the account. A phrase from financial economics, "near money," also known as "quasi-money" or " cash equivalents," refers to non- monetary assets that are very liquid and may be changed into cash with little effort.Īnalysts use this phrase to describe and measure the liquidity and proximity of liquidity for financial assets.
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