Do you want BuboFlash to help you learning these things? Or do you want to add or correct something? Click here to log in or create user.



Subject 3. Investing Short-Term Funds
#cfa #cfa-level-1 #corporate-finance #working-capital-management
Cash does not pay interest. Companies should invest funds that are not needed in daily transactions. Short-term investment is discussed in the reading.

Nominal rate: a rate of interest based on a security's face value. For a non-zero-bond, the coupon rate is the nominal rate.

A yield is the actual return on the investment if it is held to maturity.

  • Money market yield and bond equivalent yield. Refer to Reading 6 [Discounted Cash Flow Applications].
  • Discount-basis yield (also referred to as the investment yield basis) is often quoted in the context of U.S. T-securities: [(Face value - Purchase price) / (Face value)] x (360 / Number of days to maturity).

Strategies

Short-term investment strategies can be grouped into two types:

  • Passive strategy.

    • One or two decision rules for making daily investments.
    • Safety and liquidity first.
    • Passive strategies must be monitored and the yield should be benchmarked against a comparable standard (such as a T-bill).

  • Active strategy.

    • More daily involvement and a wider choice of investments.
    • Matching / mismatching: the timing of cash inflows and outflows.
    • A laddering strategy is a strategy in which a bond portfolio is constructed to have approximately equal amounts invested in each maturity within a given range (to reduce interest rate risk).

A company should have a formal, written investment policy or guideline that protects the company and its investment managers.
If you want to change selection, open original toplevel document below and click on "Move attachment"


Summary

statusnot read reprioritisations
last reprioritisation on suggested re-reading day
started reading on finished reading on

Details



Discussion

Do you want to join discussion? Click here to log in or create user.