Investment pool decisions management

Squared Wealth Management

Cash management is the process of maximizing the liquid assets through the acceleration of receivables and the disciplined control of disbursements.

The amount of cash to be held can be determined by balancing two kinds of cost decisions:

  • (1) Opportunity cost of not investing, which increases as cash balances increase.

    (2) Information costs involved in making the decisions to invest, disinvest, borrow, or repay loans, which decrease as the amount of cash balance increases.

Elements of Cash Management

Cash management is made up of four elements: (1) forecasting, (2) mobilizing and managing the cash flow, (3) maintaining banking relations, and (4) investing surplus cash.

Forecasting can be defined as the ability to calculate, predict, or plan future events or conditions using current or historical data.

A cash budget monitors how much money will be available for investment, when it will become available, and for how long.

Cash mobilization involves techniques used to assemble funds and make them readily available for investment

Maintaining good relations with banks, savings and loan associations, investment bankers, commercial paper dealers, and security analysts is an important part of cash management.

Bankers prefer compensating balances to fee payments because deposits are the main source of a bank's loanable funds.

A cash budget should provide an estimate of the organization's cash requirements for disburse-ment by months, weeks, or days.

The most attractive instruments are securities supported by the full faith and credit of the federal government.

Other relatively risk-free securities are: time deposits, time certificates of deposit (CDs), commercial paper, banker acceptances, and repurchase agreements.

Cash Flow Forecasting

To ensure that sufficient funds are available to meet organizational needs at a minimum cost:

  • (1) Cash flow forecasts must be made to minimize the cost of short-term borrowing.

    (2) Receivables must be collected efficiently from point of receipt to the place where funds can be invested or spent.

    (3) Reimbursements must be scheduled to ensure that obligations are paid on time, but not ahead of payment deadlines.


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Q&A

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What investment is portfolio managers who do lots of research manage this pool?

A portfolio manager is a person who makes investment decisions using money other people have placed under his or her control. In other words, it is a financial career involved in investment management. They work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.

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What is meant by financing and investing decisions that pertain to working capital management?

Management must allocate limited resources between competing opportunities. In general, each will be asessed via a DCF (MORE?)