CASH MANAGEMENT

							CASH MANAGEMENT

          EA&S 571
          Chapter 12
 Investing the Public’s Money
                Introduction

•   Management of school money
•   Cash on hand
•   Investment considerations
•   Obtain the best yield
•   Protect the assets against loss
    The Nature of Cash
      for Investment

• Sweep accounts
• Understanding of revenue arrivals
• Understanding of immediate needs
• Flexibility of investment (can get it back
  quick)
• Summer months
                Cash Flow
• Money comes in – money goes out
• Maintain a sufficient amount for use
• Analyzing the cash flow for a year long
  period and maintaining a history will
  provide beneficial data           $
• Prompt payment to realize incentives
• A variety of possibilities – different for most
  every school
                     Cash Flow
Cash flows in. . .




                      BALANCE



                                 . . .And cash
                                 flows out!
     Investment Considerations
• Requires careful planning
• Are you following legal restrictions
• What is the nature and amount of risk to be
  assumed
• What is the yield
• What is the degree of liquidity (can I get it
  back quickly)
• The economy/market is volatile
        Investment Instruments
•   U.S. Treasury Bills, Bonds, and Notes
•   U.S. Government Agency Bonds
•   Certificates of Deposit
•   Repurchase Agreements
•   Money Market Certificates
•   Commercial Paper
 Table 12-2 Selected Investment Instruments
               Minimum
Instrument       Amount Issuer        Liquidity                  Risk
U.S. Treasury Bill   $10,000   U.S. Gov         Immediate        Least
U.S. Treasury Bond     1,000   U.S. Gov         Immediate        Least
U.S. Treasury Note     5,000   U.S. Gov         Immediate        Least
                       1,000
U.S. Government        5,000   U.S. Gov         Immediate        Little
Agency Bonds                   Corporations
Certificates of Deposit Varied Banks, Thrifts   Fixed maturities Limited Ins.
Repurchase Agreements Varied Banks, Brokers     Immediate        Little
Money Market            Varied Banks, Thrifts   Fixed Maturities Limited Ins.
Certificates
Money Market Funds       1,000 Brokers,         Immediate        Varies with
                               Mutual Funds                      Collateral
Passbook Savings       Minimal Banks, Thrifts   Immediate        Limited Ins.
Commercial Paper        Varied Brokers          Immediate        Varies with
                                                                 The financial
                                                                 Status of the
                                                                 corporation
                Normal Yield Curve

          7.5
            7
          6.5
Percent




            6
          5.5
            5
          4.5
            4
                30   60   90      120   150   180
                               Days
                Inverted Yield Curve

          7.5
            7
          6.5
Percent




            6
          5.5
            5
          4.5
            4
                30   60   90      120   150   180
                               Days
                     Flat Yield Curve

           7
          6.5
           6
Percent




          5.5
           5
          4.5
           4
                30     60   90      120   150   180
                                 Days
        Table 12 – 3 Example Investment Returns

                                                            Weighted    Weighted
                                               Percent of    Average    Average
  Investment Type                  Amount      Portfolio    Buy Yield   Maturity

Total Repurchase Agreements       $1,000,000     8.33%       7.900%      42 days
Total Bankers Acceptances          $984,100      8.20%       8.078%      72 days
Total CDs and Bank Investments    $3,000,000    24.99%       7.540%      31 Days
Total Treasury Securities         $2,347,428    21.22%       7.980%     211 days
Total Agency Securities           $4,471,170    37.25%       8.453%     180 days
Total Investment Portfolio       $12,002,170      100%       8.048%     129 days

            Portfolio Average Weekly Earnings at Buy Yield - $18,575
          Investment Tactics


• Riding the Yield Curve
  – Selling before the note matures
  – Study yield curves – look for best opportunities
• Spreads
  – Changing yields rather than stable yields
• Swaps
  – Selling one security to buy another one
          Investment Tactics
• Short-Term Rollovers and Matching
  – Short term notes that are rolled over if the cash
    is not needed at maturity
• Odd lots and Round lots
  – Less than one million and more than one
    million – broker’s fees are greater for odd lots
    than for round lots
• Arbitrage
  – Limitations on the amount of interest you can
    earn
          Debt Management
• Management of debt service can net
  additional funds
• It is possible to refund bond indebtedness at
  a lower rate.
                Summary

• Investment of idle cash is a legitimate
  exercise in the stewardship of public money
• Cash flow analysis is an important
  prerequisite before investing public money
• Risk, yield and liquidity are important
  concepts and understandings