Corporate treasurers

Discuss how a corporate treasurer allocates the firm’s cash balance. What are the factors taken into account in making the allocation?

Corporate treasurers allocate a company’s cash by type and currency among the company’s offices, stores, and production facilities. Types of cash include coins and bills, demand (checking) deposits, and interest-bearing deposits or investments. Coins and bills are used for petty cash and retail transactions; the balance is kept to a minimum for safety considerations and since it earns no interest. Allocation depends on the nature and volume of business at each site and local financial customs. Demand deposits are used for a company’s transactions needs and are also kept to a minimum amount since no interest is generally earned. Allocation depends on the volume of transactions at each site, the variability of cash flows, efficiency of cash management, and access to financial markets. Extra cash is moved to investments to earn interest. Companies allocate cash by countries by looking at political risks that could prevent the firm from removing the cash, interest rate differentials among currencies, and forecasts of foreign exchange rate movements. Most companies net out amounts owed from one unit to another to minimize cash movements within the company.

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