FIN4320_Lecture_13_Short-Term_Investments(48p)

FIN4320_Lecture_13_Short-Term_Investments(48p) - Short-Term...

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Short-Term Investments
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Why Companies Hold Short-Term Investments Temporary Excess Funds Positive Cash Flow Seasonalities Sale of Assets Timing of Long-Term Financing Liquidity Reserve Income Generation
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Investment Issues Investment Objectives Preservation of Capital Liquidity Risk and Return Tradeoff
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Investment Issues Responsibilities for S-T Investment Policies Should state: Policy Set by board of directors Implementation Treasurer, cash manager, or investment manager Periodic Review Process
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Investment Issues Factors Influencing Investment Policies Purpose Maturity Tax Status Staffing Investment Restrictions Reporting Requirements
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Investment Issues Investment Guidelines Acceptable Investments Maturity Quality Rated Unrated Credit enhanced Marketability
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Investment Issues Investment Guidelines Diversification Acceptable Dealers/Issuers Investment Authority Custody Requirements
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Investment Issues Investment Management Internal Use in-house staff External Hire outside investment firm Performance Measurement What to benchmark against Treasury securities LIBOR Others Safekeeping
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Markets for Investments Money Market Short-Term, One Year or Less Capital Market Long-Term, Over One Year
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Investment Instruments U.S. Treasury Securities Characteristics Dutch Auction Auctioned On A Competitive and Non- Competitive Basis Stop-Out Yield Lowest Price/Highest Yield Tail Average Price – Lowest Price Bid Cover Total Bids/Total Awards
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Investment Instruments U.S. Treasury Securities Characteristics Book Entry Highly Liquid Free from Credit Risk Fully Taxable at the Federal Level Tax-Exempt at the State Level Benchmark Yield
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Investment Instruments U.S. Treasury Securities Securities Treasury Bills (T-Bills) Sold at a discount 13, 26, and 52 week maturities Minimum $1,000, round lot is $1,000,000 Use 360 day year Most liquid investment
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Investment Instruments U.S. Treasury Securities Securities Treasury Notes (T-Notes) Interest bearing security Interest paid semi-annually 2, 3, 5, 7, 10 year maturities $1,000 minimum, $1,000,000 round lot Treasury Bonds (T-Bonds) Same as T-Notes except have 10 to 30 year maturities Inflation-Indexed Securities Money Market Treasury Funds
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Investment Instruments Federal Agency Securities Characteristics Very liquid Not completely risk-free Fully taxable at the federal level Tax-exempt at the state level Re-Investment risk
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This note was uploaded on 04/02/2009 for the course DEPARTMENT FIN 4320 taught by Professor Sherwoodbishop during the Spring '08 term at Southwestern.

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FIN4320_Lecture_13_Short-Term_Investments(48p) - Short-Term...

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