Short-Term Investment Strategies
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Questions and Answers

What is the primary goal of mopping up idle funds?

  • To increase cash reserves by holding excess cash
  • To invest in long-term assets
  • To reduce risk by investing in low-return instruments
  • To generate returns and improve overall financial efficiency (correct)
  • When evaluating short-term investment options, what is an important consideration?

  • The potential for long-term growth
  • The liquidity of the investment
  • The investment duration of the organization
  • The risk and return of the investment (correct)
  • What is the purpose of diversification in short-term investments?

  • To maximize returns
  • To invest in high-risk instruments
  • To increase liquidity
  • To minimize risk (correct)
  • What is an important consideration when developing an investment policy?

    <p>The organization's risk tolerance and goals</p> Signup and view all the answers

    Why is it important to monitor and rebalance investments regularly?

    <p>To ensure investments meet the organization's liquidity needs</p> Signup and view all the answers

    What is the primary goal of cash management?

    <p>To ensure there is enough liquidity to meet short-term obligations</p> Signup and view all the answers

    Why is efficient management of accounts receivable important for cash flow?

    <p>To accelerate cash inflows and reduce the risk of bad debts</p> Signup and view all the answers

    How does inventory management impact cash flow?

    <p>It directly impacts cash flow</p> Signup and view all the answers

    What is the primary goal of cash budgeting in cash management?

    <p>To predict how the company's cash can be generated and utilized</p> Signup and view all the answers

    What is the purpose of effective cash management in terms of liquidity?

    <p>To ensure that the organization has enough cash on hand to meet its short-term obligations and cover operational expenses</p> Signup and view all the answers

    What is the result of having a cash budget?

    <p>Identifying periods of cash surplus and deficit</p> Signup and view all the answers

    What is the primary objective of cash management?

    <p>To obtain maximum cash availability and maximum interest income on idle funds</p> Signup and view all the answers

    What is the benefit of effective cash management in terms of risk management?

    <p>It reduces the risk of cash flow problems and associated financial difficulties</p> Signup and view all the answers

    What is the purpose of daily cash reports and bank book balance in cash management?

    <p>To monitor cash flow and make informed decisions</p> Signup and view all the answers

    What is the primary purpose of optimal use of funds?

    <p>To minimize idle cash that does not earn any returns</p> Signup and view all the answers

    What is the benefit of short-term investments in cash management?

    <p>It provides a way to utilize idle funds and generate additional income</p> Signup and view all the answers

    What is the purpose of bank reconciliation in cash management?

    <p>To ensure that the company's cash records are accurate and up-to-date</p> Signup and view all the answers

    Which of the following is a benefit of effective cash flow forecasting?

    <p>Providing a clear picture of expected cash inflows and outflows</p> Signup and view all the answers

    What is the primary goal of cash flow management?

    <p>To ensure cash is available for day-to-day operations</p> Signup and view all the answers

    What is a result of poor cash flow management?

    <p>The need for emergency borrowing</p> Signup and view all the answers

    What is a benefit of efficient cash collections?

    <p>Accelerating payment and reducing processing time</p> Signup and view all the answers

    What is a consequence of leaving cash idle?

    <p>Missed opportunities for investment</p> Signup and view all the answers

    What is a tool used in cash flow management to reduce the risk of cash shortages?

    <p>Cash flow forecasting</p> Signup and view all the answers

    What is a benefit of effective risk management in cash flow management?

    <p>Reducing the risk of cash shortages</p> Signup and view all the answers

    Study Notes

    Short-Term Investment

    • Mopping up idle funds involves investing surplus cash to generate returns and improve overall financial efficiency.
    • Evaluate various short-term investment instruments (e.g., money market funds, certificates of deposit) based on risk and return.
    • Diversification involves spreading investments across different instruments to minimize risk.
    • Consider liquidity by ensuring investments can be easily converted to cash when needed.
    • Develop and adhere to an investment policy that aligns with the organization's goals and risk tolerance.
    • Regularly review investments to ensure they meet the organization's liquidity needs and adjust as necessary.
    • Match the investment duration with the organization's cash flow requirements to optimize returns.

    Current Assets and Cash Management

    • The relationship between current assets and cash management is crucial for maintaining liquidity and managing working capital effectively.
    • Current assets, such as cash, accounts receivable, and inventory, represent the resources a company can convert into cash within a short period, typically one year.
    • Cash management involves overseeing the company's cash balances to ensure there is enough liquidity to meet short-term obligations.
    • Managing cash inflows and outflows, optimizing cash reserves, and investing surplus cash to earn returns are key aspects of cash management.
    • Efficient management of accounts receivable is essential for cash flow, as it accelerates cash inflows and reduces the risk of bad debts.
    • Inventory management directly impacts cash flow.

    Cash Management

    • Cash management is the monitoring and maintaining of cash flow to ensure that a business has enough funds to function.
    • It involves managing cash, collections, and short-term investments to handle payroll, meet expenses, and allocate resources efficiently.
    • Effective cash management enables businesses to manage cash flow, meet expenses, and allocate resources efficiently.
    • Cash management techniques include identifying cash available through cash budgeting, establishing investment goals, determining investment instruments, and daily routine for cash management.

    Methods of Cash Management

    • Cash monitoring involves closely observing the organization's financial resources, ensuring customers make effective payments, and banking cash as soon as possible.
    • Cash budgeting involves predicting how the company's cash can be generated and effectively utilized to identify periods of deficit and surplus.

    Purpose of Efficient Cash Management

    • Efficient cash management ensures liquidity, optimal use of funds, risk management, working capital management, financial planning, decision making, cost reduction, creditworthiness, profitability, and strategic planning.

    Management of Cash Collections

    • Efficient invoicing involves ensuring invoices are accurate, clear, and sent promptly to accelerate payment.
    • Offering multiple payment options, monitoring accounts receivable, implementing cash discounts, and encouraging electronic funds transfer can expedite cash collections.

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    Description

    Learn how to invest surplus cash to generate returns and improve financial efficiency. Evaluate short-term investment options, diversify investments, and consider liquidity when making investment decisions.

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