What is Marketable Securities?
306 reads · Last updated: December 5, 2024
Marketable securities are liquid financial instruments that can be quickly converted into cash at a reasonable price. The liquidity of marketable securities comes from the fact that the maturities tend to be less than one year, and that the rates at which they can be bought or sold have little effect on prices.
Definition
Marketable securities are liquid financial instruments that can be quickly converted into cash at a reasonable price. Their liquidity stems from their typically short maturity of less than a year, and the interest rates for buying or selling them have minimal impact on their price.
Origin
The concept of marketable securities originated with the development of financial markets, particularly in the early 20th century, as banks and financial institutions increased their demand for short-term financing, making marketable securities an important financial tool.
Categories and Features
Marketable securities are mainly categorized into Treasury bills, commercial paper, and banker's acceptances. Treasury bills are issued by the government and are highly secure; commercial paper is issued by companies, typically for short-term financing; banker's acceptances are guaranteed by banks and have high creditworthiness. The main features of marketable securities are high liquidity and low risk.
Case Studies
A typical case is the U.S. Treasury bill market, where investors can achieve short-term investments with relatively stable returns by purchasing Treasury bills. Another example is large corporations like Apple Inc. issuing commercial paper to meet their short-term funding needs.
Common Issues
Common issues investors face when using marketable securities include the impact of interest rate fluctuations on returns and potential difficulties in liquidation during periods of low market liquidity. It is generally advised that investors consider the issuer's credit rating and the market environment when selecting marketable securities.
