Question

Short-term investments: Select one: a. Are securities that management intends to convert to cash within the longer of one year or the current operating cycle, and are readily convertible to cash. b. Include funds earmarked for a special purpose such as bond sinking funds. c. Include stocks not intended to be converted into cash. d. Include bonds not intended to be converted into cash. e. Include sinking funds not intended to be converted into cash.

Answer 1

Answer:

a. Are securities that management intends to convert to cash within the longer of one year or the current operating cycle.

Explanation:

Short term investments are those which are more liquid and readily convertible into cash within a short span of time usually in lesser than an year.

Examples of short term investments would be money market instruments, treasury bonds, marketable securities, commercial papers, certificate of deposits etc.

The purpose behind investing idle funds into such investments being that management may require such funds at any time to meet the working capital needs so these are readily available as per the need.

Also, these investments yield handsome return given the time period for which these are invested.

Investing in long term instruments such as debt would make it cumbersome to realize the money quickly as per need and those are less liquid.