Near Money
Near money is a type of money that is easily convertible into cash or other forms of money. It includes:
1. Travelers checks: Cheques drawn on a bank in a different country.
2. Foreign exchange: Coins and banknotes of other countries.
3. Money orders: Orders to pay a specific amount of money to a particular recipient.
4. Treasury bills: Government securities that are sold in small denominations and have a maturity of less than one year.
5. Deposits: Amounts of money deposited in a bank account.
6. Money market funds: Funds that invest in low-risk, short-term debt securities.
Characteristics of near money:
- High liquidity: Easy to convert into cash or other forms of money quickly.
- Low maturity: Have a maturity of less than one year.
- Low risk: Generally considered to be relatively safe investments.
- Interest rate sensitivity: Sensitive to changes in short-term interest rates.
Uses of near money:
- Emergency savings: Money that is saved for unforeseen expenses.
- Short-term investments: Investment in money market funds or Treasury bills.
- Payments: Used to make payments for goods and services.
- Cash: Can be used for cash transactions or as a source of credit.
FAQs
What is meant by near money?
Near money refers to financial assets that can easily be converted into cash but are not directly usable as a medium of exchange. Examples include savings accounts, treasury bills, bonds, and certificates of deposit.
What is a near money example?
Examples of near money include savings accounts, money market funds, government bonds, and fixed deposits. These assets are highly liquid and can be quickly turned into cash when needed.
Why are bonds called near money?
Bonds are called near money because they can be sold or redeemed for cash relatively quickly, though they are not as liquid as physical currency. They retain high value and are a secure way to store wealth.
What is the concept of near money?
The concept of near money refers to assets that are not cash but can be easily and quickly converted into cash with minimal loss of value. These assets play an important role in liquidity management.
What is the difference between near money and cash?
Cash is the most liquid form of money that can be directly used for transactions. Near money, on the other hand, refers to assets that must first be converted into cash before they can be used.
