Question

MBA 6400 Case Study #1

Short-term investment returns: money market instruments Part of your responsibilities as a junior financial analyst is researching and identifying potential short-term liquid investment options for your firm. These investment vehicles are at times used by the firm during periods when their cash inflows exceed projections. The firm, at times, uses excess cash to purchase short-term debt instruments providing a low, but safe marginal return on invested capital.

Your Director, who reports to the firm's Chief Financial Officer (CFO) has come to you seeking your recommendation on short-term investment options for the upcoming year. The Director has asked for recommendations and a report illustrating your optimal analysis for investing $2.5m of excess cash.  

Current background info: We have a potential impending compound money market problem: The U.S. is issuing more debt, in part due to the recent tax cuts. Simultaneously, the Fed, China, Japan and to a lesser degree Russia have been reducing their holdings of U.S. Debt. Therefore, if the U.S. Treasury Department can't get entities to their positions holding U.S. debt, then the pressure to increase interest rates to make newly issued securities attractive increases. Increased interest rates at the Treasury means securities prices fall with cascading impacts.

Therefore, the current interest rate environment is one where rates are expected to increase.

The analysis report to be presented to the Director is to include:

1. Your concise statement and recommendation of the specific short-term investment options that meets the firm's criteria.

2. A detailed summary of the investment asset and the parameters you will use in which to base your recommendation.

3. A detailed description of the upside and downside risk of each investment. The latter is of particular importance as the firm may decide to manage excess cash in one or more vehicles for longer than one year.

4. Source identifier for all investment selections

a. Example: website URL

5. A spreadsheet (embedded into the report) illustrating the following:

a. Asset category/classification

b. Specific money market instrument identifier i. Example: U.S. Treasury CUSIP

6. EAR for each investment

7. YTM for each investment

a. If held to maturity

b. If sold at the end of 12 months

8. Total return for investment portfolio if held to maturity

9. Spreadsheet model is to include all cell-based formulas for all calculations Your conclusion is to summarize the recommendation made in item #1 above Format for report.

Answer 1

1)YOUR CONSCIENCE STATEMENT AND RECOMMENDATION OF THE SPECIFIC SHORT TERM INVESTMENT OPTIONS THAT MEET THE FIRMS CRITERIA?

A) As the case suggests that money market instruments torments lots of trade off between the financial traders and the investors so this short term investments can be more useful and impacts more attention towards the market and it can be identified as the short term liquid option too which helps to improve the rate.In the U.S market and the current trends of the other nations also showcases the problem of impending bad debt due to the problem of liquidity and the interest rates have risen sharply.so induce in money markets and the result will be shown.

2) A DETAIL SUMMARY OF THE INVESTMENT ASSETS AND THE PARAMETERS YOU WILL USE IN WHICH TO BASE THE RECOMMENDATION?

A)Investment assets can be tangible or intangible assets producing the desired results if it was done in a specific manner they are 1.Mutual funds 2.stocks 3.Bonds 4.Real estates 5.savings account.

3)A DETAIL DESCRIPTION OF THE UPSIDE AND DOWNSIDE RISK OF EACH INVESTMENT.THE LATTER IS OF PARTICULAR IMPORTANCE AS THE FIRM MAY DECIDE TO MANAGE EXCESS CASH IN ONE OR MORE VEHICLES FOR LONGER THAN ONE YEAR.

A) Down side is risk is contrast to the upside potential of the things which is the likely hood that a security value will increase,downside risk often effects the looses that occurs and it provides the stability that one gives in enriching the quality of the investment they are so many investment decisions and criteria to involve in they are capital budgeting and the working capital management so by this with the case that was given above the longer version of the things can be illuminated further with the decisions that was made.

4) SOURCE IDENTIFIER FOR ALL INVESTMENT SELECTIONS?

A) Website where we can extract everything URL is www,investassets,co,in