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Unformatted text preview: 1 FIN 301 Class Notes Chapter 20: Working Capital Management Cash and Marketable Securities Management Are the most liquid of a firm’s assets Cash consists of currency and deposits in checking accounts Marketable securities consist of S-T investments made with idle cash Investing Idle Cash: The Money Market The securities normally used for temporary investments are usually purchased in the money market where short-term, high quality, marketable securities are traded. When cash needs are known, securities of specific short-term maturity may be selected. If cash is needed, money market securities may be sold quickly, and because there is little price variability if market interest rates change, the cost of selling the securities is kept at a minimum. One choice of short-term is Treasury bills, which mature less than 6 months and are the safest money market securities. Another choice is high quality investment is commercial paper , the short-term notes (maturities usually less than 270 days) issued by industrial and financial corporations. Certificates of deposits (CDs) are short-term notes issued by commercial banks. Repurchase agreements (repos), the purchase of securities under agreement to resell (at a higher price) are issued by commercial banks when the checking account of the business is higher than desired. The money stays in the bank and the business has a temporary earning investment. Reasons for Holding Cash and Marketable Securities: Transactions: Firms use cash to make transactions (pay bills) until they receive cash from customers. Precautionary: firms hold cash as a precaution to meet any unexpected demand for cash....
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- Spring '08
- Balance Sheet, Credit rating, Discounts and allowances, Marketable Securities, Marketable Securities Management