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?

The organization's risk tolerance and goals (A) Signup and view all the answers

Why is it important to monitor and rebalance investments regularly?

To ensure investments meet the organization's liquidity needs (C) Signup and view all the answers

What is the primary goal of cash management?

To ensure there is enough liquidity to meet short-term obligations (D) Signup and view all the answers

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

To accelerate cash inflows and reduce the risk of bad debts (A) Signup and view all the answers

How does inventory management impact cash flow?

It directly impacts cash flow (C) Signup and view all the answers

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

To predict how the company's cash can be generated and utilized (C) Signup and view all the answers

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

To ensure that the organization has enough cash on hand to meet its short-term obligations and cover operational expenses (B) Signup and view all the answers

What is the result of having a cash budget?

Identifying periods of cash surplus and deficit (A) Signup and view all the answers

What is the primary objective of cash management?

To obtain maximum cash availability and maximum interest income on idle funds (D) Signup and view all the answers

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

It reduces the risk of cash flow problems and associated financial difficulties (A) Signup and view all the answers

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

To monitor cash flow and make informed decisions (D) Signup and view all the answers

What is the primary purpose of optimal use of funds?

To minimize idle cash that does not earn any returns (B) Signup and view all the answers

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

It provides a way to utilize idle funds and generate additional income (A) Signup and view all the answers

What is the purpose of bank reconciliation in cash management?

To ensure that the company's cash records are accurate and up-to-date (B) Signup and view all the answers

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

Providing a clear picture of expected cash inflows and outflows (A) Signup and view all the answers

What is the primary goal of cash flow management?

To ensure cash is available for day-to-day operations (A) Signup and view all the answers

What is a result of poor cash flow management?

The need for emergency borrowing (B) Signup and view all the answers

What is a benefit of efficient cash collections?

Accelerating payment and reducing processing time (B) Signup and view all the answers

What is a consequence of leaving cash idle?

Missed opportunities for investment (A) Signup and view all the answers

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

Cash flow forecasting (D) Signup and view all the answers

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

Reducing the risk of cash shortages (D) Signup and view all the answers

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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.