Management of Cash and Marketable Securities

Management of Cash and Marketable Securities1. The ______________ cycle in part determines how long it
takes for a firm to ______________ cash from its short-term
______________ and, therefore, the ______________ and cost
of its investment in ______________ assets, or
______________ capital. Working capital is the capital that
managers can immediately put to work to generate the
______________ of capital investment. Working capital is also
known as ______________ capital or ______________ capital.
2. The firm’s ______________ cycle is the time it takes the firm
to turn its investment in inventory into cash. It affects how
much the firm ties up in ______________ assets. The operating cycle comprises the time it takes to: ______________ the
goods, ______________ them, and ______________ on their
sale. The ______________ operating cycle considers the
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184 QUESTIONS AND PROBLEMS
benefit from purchasing goods on ______________ and is
the operating cycle less the number of days of on which the
account is still owed. The ______________ the net operating
cycle, the ______________ the investment in current assets.
3. Cash flows ______________ of a firm as it pays for the goods
and services it ______________ from others. Cash flows
______________ the firm as customers ______________ for
the goods and services they ______________. When we refer
to cash, we mean the amount of ______________ and
______________ assets—currency, coin, and bank balances.
When we refer to cash ______________, we mean management of cash ______________ and ______________, as well
as the stock of ______________ on hand.
4. There is always some degree of ______________ about
future cash needs. Firms typically hold an additional balance, referred to as a(n) ______________ balance, just in case
transactions ______________ exceed the transactions
______________. But how much to keep as a(n)
______________ depends on the ______________ of the
transactions uncertainty—how well we can ______________
our transactions needs.
5. If a firm needs cash, it must either ______________ an
asset or ______________ cash. There are ______________
costs associated with either. ______________ costs are the
fees, ______________, or other costs associated with
______________ assets or ______________ to get cash;
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Management of Cash and Marketable Securities 185
they are analogous to the ordering costs for
______________.
6. Speeding up ______________ cash is done by using a(n)
______________ system, through the selection of
______________, processing the ______________ within
the firm, ______________ collection, and ______________
banking. A(n) ______________ is a location where banks
meet to exchange checks drawn on each other, and a clearinghouse bank is a participant in a clearinghouse. Being a
member of a clearinghouse can ______________ check clearing time by up to one-half a day relative to clearing checks
through the ______________ system. A(n) ______________
bank is a bank that has an agreement with a clearinghouse bank to exchange its checks in the clearinghouse.
7. In addition to speeding up incoming cash, ______________
down payment of cash is important. It can be done
through ______________ disbursements by
______________ bank balances by depositing only what is
needed to make ______________ demands on the account
and ______________ disbursement by paying what is
______________ with checks drawn on a bank that is
______________ readily accessible to the payee,
______________ the check processing ______________.
8. The primary role of marketable securities is to store cash
that isn’t needed ______________, but may be needed
soon. Examples of these securities are ______________ of
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186 QUESTIONS AND PROBLEMS
deposit, ______________ paper, ______________ deposits,
and ______________ bills. When evaluating the
______________ of the investment, the following
______________ should be considered: ______________
risk, ______________ power risk, ______________ rate
risk, ______________ rate risk, and ______________ risk.
SHORT ANSWER QUESTIONS
Refer to Chapter 19, pages 627–648 in Financial Management and Analysis.
1. What factors determine a firm’s investment in current
assets? What types of firms have more investment in current assets than others?
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Management of Cash and Marketable Securities 187
2. What is cash forecasting and what is its relationship to the
operating cycle and net operating cycle?
3. Why would a firm hold cash balances?
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188 QUESTIONS AND PROBLEMS
4. How much cash should a firm hold and what are the costs
associated with doing so?
5. What is the lockbox system and how does it function?