Which of the following is not typically considered a cash equivalent?

• A. Long-term government bonds
• B. Treasury bills
• C. Money market funds
• D. Short-term certificates of deposit

Answer: (A)

Cash equivalents are investments that are essentially as good as cash: they can be converted to a known amount of cash quickly and with very little risk to their value. They usually have very short maturities, so you can access the money without significant price changes.

Long-term government bonds do not fit this category because they have extended maturities and can fluctuate in value based on interest rate changes. If you need cash soon, selling them might mean getting less than their original value, which is exactly what cash equivalents avoid.

Treasury bills are classic cash equivalents because they’re short-term, highly liquid, and very safe, making them easy to convert to cash with minimal risk.

Money market funds also act as cash substitutes for many people because they offer quick access to funds and low risk, so they’re typically treated as cash equivalents in practice.

Short-term certificates of deposit are usually cash equivalents when their maturity is short, since they can be redeemed after a brief wait with minimal risk and decent liquidity.

So the item that isn’t typically considered a cash equivalent is the long-term government bond, due to its longer horizon and potential price movement before you can access the funds.