Arizona State University (ASU) ACC502 Financial Accounting Practice Exam

Short-term marketable securities are financial instruments that a company invests in with the intention of converting them to cash within a short period, typically within one year. These investments are made with excess cash that is not required for immediate operational needs. This allows a company to earn a return on its available cash while still maintaining liquidity to cover short-term obligations.

Investing in short-term marketable securities lets a company take advantage of opportunities for growth without sacrificing the ability to access cash in the near term. These securities are usually highly liquid, meaning they can be easily sold or converted to cash, making them a suitable option for companies looking to manage their cash flow effectively.

In contrast to the other choices, this investment strategy focuses on balancing the need for liquidity with the desire for earning a return on spare cash resources, ensuring that companies can respond to immediate financial demands while also potentially benefiting from market fluctuations.