Legal Definitions - near money

Near money refers to financial assets that are not actual cash but can be quickly and easily converted into cash with little to no loss in value. These assets are highly liquid and serve as a close substitute for immediate currency, making them readily available for spending or investment.

• Example 1: A Business's Money Market Fund

  Imagine a small manufacturing company that keeps a portion of its operating reserves in a money market fund. This fund is not physical cash, but the company can typically access these funds almost instantly, often within a day, to cover unexpected expenses, purchase raw materials, or make payroll. It functions very similarly to a checking account in terms of liquidity, but often earns a slightly higher interest rate, making it a prime example of near money.

• Example 2: An Individual's Short-Term Certificate of Deposit (CD)

  Consider an individual who invests a sum of money in a 3-month Certificate of Deposit (CD). While a CD has a fixed maturity date, a very short-term CD like this can be considered near money. Upon maturity, the funds become immediately available as cash. Even if the individual needed the money slightly earlier, the penalty for early withdrawal on such a short-term CD would likely be minimal, allowing for quick conversion to cash with little loss.

• Example 3: A University's Holdings in Treasury Bills

  A large university might hold a significant portion of its endowment's liquid assets in U.S. Treasury Bills (T-Bills) with maturities of 4 to 13 weeks. Treasury Bills are short-term debt instruments issued by the U.S. government, considered extremely safe and highly liquid. The university can easily sell these T-Bills on the secondary market before their maturity date without significant loss of principal, quickly converting them into cash to fund unexpected research grants or facility repairs. This makes them an excellent example of near money due to their security and ease of conversion.