Cash And Marketable Securities Management Flashcards
Checks that are authorized by a payer in advance, and written either by the payee or by the payee’s bank and the deposited in the payee’s bank account
Preauthorized Checks (PACs)
Length of time from when a check is written until the actual recipient can draw upon or use the “good funds”
Float
A non-negotiable instrument that provides the firm with a means to move funds from local bank accounts to concentration bank accounts
Depository transfer checks
Also known as near cash (or near-cash) assets
Marketable securities
Involves the maintenance of the appropriate level of cash to meet the firm’s cash requirements and to maximize income on idle funds
Cash Management
Security investments the firm can quickly convert to cash balances
Marketable securities
Process of planning and controlling investment in marketable securities to meet the firm’s cash requirements and to maximize income on idle funds
Marketable Securities Management
Selection of a few major banks where the firm maintains significant disbursing accounts
Concentration banking
Four primary motives for maintaining cash balances
- Transaction or Liquidity Motive
- Precautionary or Contingent Motive
- Speculative Motive
- Contractual Motive
Inability to pay the bills on time
Insolvency
A payment mechanism that substitutes for regualar checks in that drafts are not drawn on anbank, but instead are drawn on and authorized by the firm against its demand deposit account
Payable-through drafts
Permits centralized control over cash outflows but also maintains divisional disbursing authority
Zero balance authority
Holding of cash to facilitate normal transactions of the business
Transaction or Liquidity Motive
Delay between the firm sending out a payment and the money being taken out of the firm’s bank account.
Disbursment float (positive float)
Hold cash to compensate banks for providing certain services and loans
Contractual Motive
A collection of geographically dispersed P.O boxes, each maintained for the firm by a bank local to the respective box.
Lock-box system
Moving funds electronically and eliminates transit float
Wire transfers
Accelerates cash collections from customers by having funds sent to several geographically situated regional banks and then transferred to a main concentration account in another bank.
Concentration banking
Held to avail incentives; to take advantage of discounts and attractive interest rates
Speculative Motive
Several different techniques that can help firms reduce collection float
- Lock-box system
- Concentration banking
- Pre-authorized checks
- Wire transfers
The sum of cash and marketable securities
Liquid assets
Three types of collection float
- Mail float
- Processing float
- Clearing float
To provide for buffer against contingencies; payment for purposes which cannot be predicted; maintenance of balances to be used to satisfy possibe, but yet indefinite cash needs
Precautionary or Contingent Motive
Currency and coin plus demand deposit accounts
Cash
