Short Term Investments

Short-term investments are a provisional store of money that can be drawn upon quicker than long-term investments but are not as liquid as cash or cash equivalents. Short-term working capital investments are liquid, low beta, short maturity vehicles that experience high turnover rates due to operating requirements. Types of short-term instruments are:

U.S. Treasury Bills (T-Bills): Usually 13, 26, and 52 weeks in maturity, T-bills are obligations of the U.S. government with no default risk and are issued at a discount. There is an active secondary market for such instruments and they offer some of the lowest rates for all securities.
Federal Agency Securities: Usually 5 to 30 days in maturity, federal agency securities are obligations of organizations with an implicit guarantee from the U.S. government, i.e. the Federal Home Loan Board, issued at somewhat higher yields than T-bills and are interest bearing. Such instruments have little liquidity risk and almost no credit risk.
Bank Certificates of Deposit (CDs): Usually 14 to 365 days in maturity, CDs are obligations of banks used in trade transactions. CDs are issued at a discount and are interest bearing notes in $100,000 increments. There is a modest secondary market for CDs and their credit risk is based on the bank's credit history.
Banker's Acceptances (BAs): Usually 30 to 180 days in maturity, banker's acceptances are obligations of banks used in trade transactions. BAs are issued at a discount, are insured by the underlying firm and cash flows from trade. There is a modest secondary market for BAs and their credit risk is based on the bank's credit history.
Eurodollar Time Deposits: Usually 1 to 180 days in maturity, eurodollar time deposits are offshore bank issuances. They can be CDs or straight time deposits and are interest bearing. There is a small secondary market for CDs (No secondary market for straight time deposits), their credit risk is based on the bank's credit history, and there is extraordinarily high liquidity risk for time deposits.
Bank Sweep Services: Usually 1 day in maturity, bank sweep services are basically interest on checking account balances over a minimum level. There is a large overnight bank sweeps market and their credit and liquidity risk is based on the bank's history.
Repurchase Agreements (Repos): Usually 1+ days in maturity, repos are securities that are bought back at a future time at an over-collateralized rate of 102%. Repos have typically short maturities and their credit and liquidity risk is based on the dealer's history.
Commercial Paper (CP): Usually 1 to 270 days in maturity, commercial paper is unsecured debt of corporations used to obtain short-term credit ratings. CP is issued at a discount, there is a large secondary market, and the credit and liquidity risk is based on credit rating.
Mutual Funds and Money Market Mutual Funds: Money market mutual fund maturities vary and are commonly used for small businesses. They offer low yields, high liquidity, and can be linked with bank sweep arrangements. Credit and liquidity risk is based on the fund manager's history.
Tax-Advantaged Securities: Usually, 7, 28, 35, 49, and 90 days in maturity, tax-advantaged stocks can be preferred stock, adjustable rate preferred (ARP), auction rate preferred (AURP), convertible adjustable preferred (CAP), etc. These securities often employ Dutch auctions to set yields, offer higher rates, and their credit and liquidity risk is based on the issuers credit history.

Financial Terms by BetterTrades