Highly liquid, low-risk, and low-return instruments or investments. Examples of cash equivalents include money market instruments, treasury bills, short-term government bonds, marketable securities, and commercial paper. They mature within three months compared to short-term investments that mature in 12 months and long-term investments that mature in over 12 months.

These types of investments are generally permitted under a loan agreement and treated similarly to the borrower's cash holdings because they have short maturities and can easily be liquidated to generate readily-available cash if needed. Enabling a borrower under a loan agreement to hold these types of investments gives the borrower the flexibility to hold some of its cash reserves in safe investments that yield higher returns than the borrower could obtain on cash deposits.