Marketable securities are financial instruments that can be easily bought or sold in the market, allowing investors to convert them into cash quickly. These securities are typically issued by governments, corporations, or other financial institutions and are considered to be highly liquid investments. There are several types of marketable securities, each with its own characteristics and features. In this answer, we will explore the different types of marketable securities in detail.
1. Treasury Bills (T-bills): T-bills are
short-term debt instruments issued by the government to finance its operations. They have a
maturity period of less than one year, typically ranging from a few days to 52 weeks. T-bills are considered to be one of the safest investments as they are backed by the full faith and credit of the government. They are sold at a discount to their face value and do not pay periodic
interest. Instead, investors earn a return by purchasing them at a discount and receiving the full face value at maturity.
2.
Treasury Notes (T-notes): T-notes are medium-term debt instruments issued by the government with maturities ranging from 2 to 10 years. They pay semi-annual interest to investors based on a fixed
coupon rate. T-notes are considered to be relatively safe investments due to the government's backing and are often used by investors seeking a steady income stream.
3. Treasury Bonds (T-bonds): T-bonds are
long-term debt instruments issued by the government with maturities exceeding 10 years. Like T-notes, they pay semi-annual interest based on a fixed coupon rate. T-bonds are attractive to investors looking for
long-term investments and a steady income stream. They are also considered relatively safe due to the government's backing.
4. Commercial Paper: Commercial paper is an unsecured, short-term debt instrument issued by corporations to meet their short-term funding needs. It typically has a maturity period of less than 270 days. Commercial paper is usually issued at a discount to its face value and does not pay periodic interest. Instead, investors earn a return by purchasing it at a discount and receiving the full face value at maturity. Commercial paper is considered to be relatively safe, especially when issued by financially stable corporations.
5. Certificates of
Deposit (CDs): CDs are time deposits offered by banks and other financial institutions. They have fixed maturity dates ranging from a few months to several years. CDs pay a fixed
interest rate and are insured by the Federal Deposit
Insurance Corporation (FDIC) up to a certain limit, making them a relatively safe investment option. However, early withdrawal may result in penalties.
6. Municipal Bonds: Municipal bonds, also known as munis, are debt securities issued by state and local governments to finance public projects such as schools, highways, or
infrastructure development. Municipal bonds offer tax advantages to investors, as the interest income is often exempt from federal
income tax and sometimes from state and local
taxes as well. They can have varying maturities, ranging from short-term to long-term.
7. Corporate Bonds: Corporate bonds are debt securities issued by corporations to raise capital for various purposes, such as expansion, acquisitions, or refinancing existing debt. Corporate bonds typically pay periodic interest to investors based on a fixed or floating coupon rate. They can have varying maturities, ranging from short-term to long-term. Corporate bonds carry different levels of
risk depending on the
creditworthiness of the issuing corporation.
8.
Money Market Instruments:
Money market instruments are short-term debt securities with high
liquidity and low risk. They include Treasury bills, commercial paper, certificates of deposit, and other short-term debt instruments. Money market instruments are typically used by investors seeking capital preservation and a safe place to park their funds temporarily.
In conclusion, marketable securities encompass a wide range of financial instruments that can be easily bought or sold in the market. The different types of marketable securities include Treasury bills, Treasury notes, Treasury bonds, commercial paper, certificates of deposit, municipal bonds, corporate bonds, and money market instruments. Each type has its own unique characteristics and features, catering to the diverse investment needs and risk preferences of investors.
