Cash Equivalent

An asset that is so easily and quickly convertible to cash that holding it is equivalent to holding cash. A Treasury bill is considered cash equivalent. A way of liquidating a futures or option position is for the seller to provide the cash equivalent to the buyer rather than the security or instrument itself. Settling by cash equivalent may be a much simpler process than providing the underlying bonds or shares. It is usually done when the counter party to a deal has no interest in owning the underlying securities but wishes to protect itself against interest rate or market moves.

See also: Cash Settlement