Question

You are the treasury manager for XYZ Bank and your company invests its idle
cash in short term securities. XYZ Bank CFO is looking for moderately risky
securities with high levels of liquidity and return. You need to explain to the CFO
and the board about suitable money market products for the company that will fit
their liquidity needs. Give them four options and precisely explain why?

Answer 1

4 money market products for the company are as follows-

A. Treasury bills- chief financial officer should be looking to invest in treasury bills because treasury bills are highly liquid securities and treasury bills will be having a very high amount of security as well because these are secured by the Federal government of United States of America and hence treasury bills will be offering the investor with moderate rate of return and they are also considered risk-free

B. Certificate of deposits- the company can invest into certificate of deposits of other companies because certificate of deposits are are very liquid money market instruments which will be offering the company with higher degree of liquidity and it will also offer a high rate of return and it will also offer the benefit of quick entry and exit and they are highly credible.

C. commercial papers are also advisable to invest into because commercial papers of other companies which are traded in the market are short-term money marketinstrument which will be helping in generation of a moderate rate of return but it will also help with high level of liquidity and this will also provide with easy entry and easy exit and there will be a high degree of transparency in trading of these commercial papers. The maturity period of commercial papers are seven days to one year and it will be attracting a high group of customers.

D. Banker's acceptance ate also traded in the financial market and it will be signifying the loan which has been extended to the stipulated bank and it has signed guarantee of repayment in future so this can also be used for making a high rate of return