Question

In: Economics

XYZ firm has $10 million in extra cash it does not plan on needing for three...

XYZ firm has $10 million in extra cash it does not plan on needing for three months. The cash does include some contingency funds that are kept if unexpected funds needs arise. Your boss asked you to suggest a money market investment for the firm. Prepare a memo to them explaining different types of money market investments available and the pros and cons of investing in each.

Expert Solution

MEMO

TO. XYZ FIRM

FROM.

DATE

SUBJECT suggestions to invest the idle cash in money market

Sir

This is to inform you that our firm has $10 million as extra cash , here are some suggestions to invest them in money market investment

1. Commercial paper- it is a insecured short term corporate debt, generally issued at a discounted value on face value. It is issued for financing working capital like receivables, inventory etc with a duration of 30-270 days .

Pros highly liquid, convenient to issue

Cons - needrisk management, interest rate may be variable.

2. Bankers acceptance- it is a short term investment plan which is backed by bank and it is guarantee by bank , hence it is highly secured investment. with a maturity of 30-189 days , it is similar to bills of exchange . It is issued by firms to finance export, imports and other trade .

Pros highly secured , no need to hold it until maturity.

Cons not all firms can invest , it includes complicated procedure.

3. Other investment includes , mutual funds of different companies, savings schemes for corporate firms and other bank short term investment like fixed deposit.

Pros highly liquid and convenient

Cons low interest and high risk

Please refer to above investment plans and evaluate which is the better option to invest

Regards

Rahul Sunny answered 2 years ago

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