Cash Management

1109 Words Feb 27th, 2012 5 Pages
Cash Management Comparison
Cash Management Comparison
Many organizations make a financial goal to minimize the amount of cash on hand on a monthly basis. This goal is based on attempting to reduce the amount of non-earning assets for the company. Cash on hand that is not required to meet a specific need could be placed in an interest bearing account or used to pay down on a credit balance, also reducing the amount of interest a company would have to pay on a loan. “Minimizing cash balances as well as having accurate knowledge of when cash moves into and out of the company can improve overall corporate profitability.” (Block & Hirt, 2004, pg. 175).
As companies find a need to supplement business financial goals, obtaining credit or loans
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186) Similar in concept to T-Bills, but different in the length of term are the Treasury Notes. “Treasury notes are government obligations with a maturity of 1 to 10 years, and they may be purchased with short- to intermediate-term funds.” (Block & Hirt, 2004, pg. 186)
After federal government securities the next tier risk wise is federal agency securities. Examples include Federal Home Loan Banks and the Student Loan Marketing Associations that lack the “direct backing of the U.S. Treasury, they are guaranteed by the issuing agency and provide all the safety that one would normally require.” (Block & Hirt, 2004, pg. 187)
Non-governmental securities provide the most amount of risk but also carry the possibility for the highest return of the three categories described. “Certificate of deposit (CD), offered by commercial banks, savings and loans, and other financial institutions. The investor places his or her funds on deposit at a specified rate over a given time period as evidenced by the certificate received.” (Block & Hirt, 2004, pg. 187)
“Comparable in yield and quality to large certificates of deposit, commercial paper represents unsecured promissory notes issued to the public by large business corporations.” (Block & Hirt, 2004, pg. 187) With the deregulation of financial institution money market accounts, which are