Cash

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Identify the primary investment objectives typically associated with the asset class of cash. 
    • Preservation of capital 
    • Liquidity of capital  
  • Explain purposes for holding the asset class of cash, such as:
    • Maintain liquidity for emergencies
    • Maintain liquidity to fund expenses or purchases
    • Maintain / reduce volatility
    • Generate income 
  • Define cash and cash-equivalent investment vehicles that are a part of the asset class of cash, such as: 
    • Domestic currency 
    • Chequing / savings accounts
    • Canada bonds
      • Canada Savings Bonds
      • Canada Premium Bonds
    • Treasury bills (T-Bills)
    • Bankers’ acceptance
    • Commercial paper
    • Short Term Guaranteed Investment Certificates (GICs) and Term Deposits1
    • Money market (mutual) funds2
  • Explain characteristics of each cash or cash-equivalent investment, such as: 
    • Relative potential for loss of capital 3 
    • Level of liquidity 
    • Relative level of volatility
    • Expected rate of return 
  • Determine how each of these factors may impact the suitability of a cash or cash-equivalent investment: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations 
  • Evaluate how each of the factors may impact the suitability of a cash or cash-equivalent investment. 
  • Explain for whom each cash or cash-equivalent investment may be suitable.  
  • Explain how a return is generated for each cash and cash-equivalent investment. 
  • Interpret the return for a cash and cash-equivalent investment.  
  • Explain risks associated with each cash and cash-equivalent investment.  
  • Explain opportunities for diversification within the asset class of cash, such as:
    • By credit quality of issuer
    • By term to maturity of investment
    • By government coverage of asset (CDIC or similar provincial agency) 
  • Identify that cash and cash equivalent investments typically generate interest income.  
  • Explain the tax treatment (based on the asset location) of each type of cash and cash-equivalent investment. 
    • When held to maturity 4
    • When disposed of prior to maturity 
  • Estimate the tax impact (based on the asset location) of holding each type of cash and cash-equivalent investment. 
    • If held to maturity 5
    • If disposed of prior to maturity 
  • Explain the types of bonds offered by the Canadian Government that act as a cash and cash-equivalent investment.
    • Canada Savings Bonds
    • Canada Premium Bonds 
  • Identify that Treasury Bills are also available from some foreign governments. 
  • Identify that foreign Treasury Bills may be used as a hedge against the depreciation of the Canadian dollar versus the foreign currency.  
  • Explain that a Guaranteed Investment Certificate and/or term deposits may have restrictions on redemption prior to maturity. 
  • Define opportunity cost.  
  • Explain the opportunity cost of holding a cash or cash-equivalent investment.


REFERENCES

1 “Short-term” generally applies to any Guaranteed Investment Certificate or term deposit with a remaining maturity of one year or less, or any similar investment that can be redeemed prior to maturity with no loss of capital.  

2 While there is a theoretical risk of loss of capital for a money market mutual fund, the historical probability has been close to zero and as such, they are regularly included in practice as a cash equivalent investment. 

3 Consumer protection organizations such as CDIC should be evaluated within the potential for loss of capital. 

4 Domestic currency, chequing / savings accounts and money market instruments do not have a maturity. Explain the tax treatment for each of these investments when income is received from them. 

5 Domestic currency, chequing / savings accounts and money market instruments do not have a maturity. Calculate the estimated tax impact (based on asset location) for each of these investments when income is received from them. 

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Identify the primary investment objectives typically associated with the asset class of cash. 
    • Preservation of capital 
    • Liquidity of capital  
  • Explain purposes for holding the asset class of cash, such as:
    • Maintain liquidity for emergencies
    • Maintain liquidity to fund expenses or purchases
    • Maintain / reduce volatility
    • Generate income 
  • Define cash and cash-equivalent investment vehicles that are a part of the asset class of cash, such as: 
    • Domestic currency 
    • Chequing / savings accounts
    • Canada bonds
      • Canada Savings Bonds
      • Canada Premium Bonds
    • Treasury bills (T-Bills)
    • Bankers’ acceptance
    • Commercial paper
    • Short Term Guaranteed Investment Certificates (GICs) and Term Deposits1
    • Money market (mutual) funds2
  • Explain characteristics of each cash or cash-equivalent investment, such as: 
    • Relative potential for loss of capital3 
    • Level of liquidity 
    • Relative level of volatility
    • Expected rate of return 
  • Determine how each of these factors may impact the suitability of a cash or cash-equivalent investment: 
    • Time horizon 
    • Volatility
    • Risk tolerance
    • Investment objective 
    • Financial situation 
    • Personal situation 
    • Income
    • Liquidity 
    • Control 
    • Tax impact
    • Investment management process
    • Economic cycle
    • Cost
    • Historical performance 
    • Performance expectations 
  • Evaluate how each of the factors may impact the suitability of a cash or cash-equivalent investment. 
  • Explain for whom each cash or cash-equivalent investment may be suitable.  
  • Explain how a return is generated for each cash and cash-equivalent investment. 
  • Interpret the return for a cash and cash-equivalent investment.  
  • Explain risks associated with each cash and cash-equivalent investment.  
  • Explain opportunities for diversification within the asset class of cash, such as:
    • By credit quality of issuer
    • By term to maturity of investment
    • By government coverage of asset (CDIC or similar provincial agency) 
  • Identify that cash and cash-equivalent investments typically generate interest income.  
  • Explain the tax treatment (based on the asset location) of each type of cash and cash-equivalent investment. 
    • When held to maturity4
    • When disposed of prior to maturity 
  • Estimate the tax impact (based on the asset location) of holding each type of cash and cash-equivalent investment. 
    • If held to maturity5
    • If disposed of prior to maturity 
  • Explain the types of bonds offered by the Canadian Government that act as a cash and cash-equivalent investment.
    • Canada Savings Bonds
    • Canada Premium Bonds 
  • Identify that Treasury Bills are also available from some foreign governments. 
  • Identify that foreign Treasury Bills may be used as a hedge against the depreciation of the Canadian dollar versus the foreign currency.  
  • Explain that a Guaranteed Investment Certificate and/or term deposits may have restrictions on redemption prior to maturity. 
  • Define opportunity cost.  
  • Explain the opportunity cost of holding a cash or cash-equivalent investment.

REFERENCES

1 “Short-term” generally applies to any Guaranteed Investment Certificate or term deposit with a remaining maturity of one year or less, or any similar investment that can be redeemed prior to maturity with no loss of capital.  

2 While there is a theoretical risk of loss of capital for a money market mutual fund, the historical probability has been close to zero and as such, they are regularly included in practice as a cash equivalent investment. 

3 Consumer protection organizations such as CDIC should be evaluated within the potential for loss of capital. 

4 Domestic currency, chequing / savings accounts and money market instruments do not have a maturity. Explain the tax treatment for each of these investments when income is received from them. 

5 Domestic currency, chequing / savings accounts and money market instruments do not have a maturity. Calculate the estimated tax impact (based on asset location) for each of these investments when income is received from them. 
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