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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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9.3 INVESTMENT OF SURPLUS CASH IN NEAR-CASH ASSETS

9.3.1 Determination of Ratio between Cash and Near-Cash Assets

It has already been pointed out that the funds for precautionary and speculative purposes are normally held in form of near-cash assets. Whenever required, they are converted into cash. The funds for transaction purposes are held in form of cash as they are required for day-to-day expenses. However, there is every possibility that the amount of cash is in excess of the actual requirements during a particular period, say, a week or a fortnight or a month. In such cases, the excess cash is invested in marketable securities for that period. The benefit of such investment is that the cash is not lying idle and the firm earns a specific ...

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