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Cash, the most liquid asset, is of vital importance to the daily operations of the
business firms.
There are three primary reasons for a firm to hold cash.
To meet the needs of daily transactions.
To protect the firm against uncertainties.
To take advantage of unexpected investment opportunities.
CASH MANAGEMENT
TRANSACTION MOTIVE- Cash balance is kept by the firms with the motive of
meeting routine activities.
MINIMISING FUNDS LOCKED UP AS CASH BALANCESA higher cash balance ensures proper payment with all its advantages.
but this will result in a large balance of cash remaining idle.
Low level of cash balance may result in failure of the firm to meet the
payment schedule.
LOCK BOX SYSTEM- The firm hires a post office box and instructs its
customers to mail their remittances to the box.
Advantages:
All remittances are handled by the banks even prior to their deposit with them at
a very low cost.
The collection process starts much earlier than concentration banking
2.DETERMINATION OF CHANNELS OF
INVESTMENT
Temporary cash surplus consists of funds which are available for investment
on a short term basis.
Permanent cash surplus consists of funds which are kept by the firm to avail
some unforeseen profitable opportunity of expansion or acquisition of some
asset.
CRITERIA FOR INVESTMENT:
1.
Security
2.
Liquidity
3.
Yield
4.
maturity