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Cash Management
Cash Management
CASH MANAGEMENT implies that all the business generated revenues are effectively controlled and utilized in the best possible manner to result in gains for the organization.
To ensure availability of cash as per payment schedule And To minimize the amount of idle cash
Speculative motive
Future requirements Compensating balances
Since the basic purpose of any cash management system is to reduce the cost. Cost involved in cash management system like any other system can be broadly divided in to fixed cost and variable costs. Fixed costs of maintaining any system may be like depreciation on hardware used, fixed employee cost
etc.the variable cost of cash management system normally depends on the volume of funds handled by the company
MANAGEMENT OF LIQUIDITY
The Miller and Orr model of cash management is one of the various cash management models in operation. It is an important cash management model as well. It helps the present day companies to manage their cash while taking into consideration the fluctuations in daily cash flow. As per the Miller and Orr model of cash management the companies let their cash balance move within two limits - the upper limit and the lower limit
The companies buy or sell the marketable securities only if the cash balance is equal to any one of these when the cash balances pf a company touches the upper limit it purchases a certain number of salable securities that helps them to come back to the desired level. If the cash balance of the company reaches the lower level then the company trades its salable securities and gathers enough cash to fix the problem. It is normally assumed in such cases that the average value of the distribution of net cash flows is zero. It is also understood that the distribution of net cash flows has a standard deviation. The Miller and Orr model of cash management also assumes that distribution of cash flow is normal
Baumol Model of Cash Management The Baumol model of cash management is one of many by which cash is managed by companies. It is extensively used and highly useful for the purpose of cash management. Use of Baumol Model The Baumol model enables companies to find out their desirable level of cash balance under certainty. Relevance At present many companies make an effort to reduce the costs incurred by owning cash. They also strive to spend less money on changing marketable securities to cash. The Baumol model of cash management is useful in this regard.
Assumptions There are certain assumptions or ideas that are critical with respect to the Baumol model of cash management The particular company should be able to change the securities that they own into cash, keeping the cost of transaction the same. Under normal circumstances, all such deals have variable costs and fixed costs. The company is capable of predicting its cash necessities They should be able to do this with a level of certainty The company should also get a fixed amount of money. They should be getting this money at regular intervals.
The company is aware of the opportunity cost required for holding cash. It should stay the same for a considerable length of time. The company should be making its cash payments at a consistent rate over a certain period of time. In other words, the rate of cash outflow should be regular.
Setting cash balance Cash cycle Zero balance account Money market banking Petty cash imprest system
Introduction
Datanet's CMS system is a fast collection system which enables the bank to offer a powerful new service to its customers, particularly its corporate customers. The product and architecture are well proven and have matured with considerable user feed back. It incorporates many a) Operationally efficient features b) Customer information features c) Monitoring and reporting systems for the bank etc.
The system architecture and functioning is as follows: There are essentially four organizational entities involved: a) The Base Branch, in which the customers (of the bank) have their accounts b) Collection Centers are branches where cheques are presented in favor of BB customers c) HUB(s) which essentially store the float fund data and d) Head Office where IBR reporting, data mart etc are built. Moreover, a branch can be configured to have dual roles. That is, a branch can be a base branch as well as a collection center.
Several flexible charging schemes are supported. It supports four types of customers - this branch, other branch, correspondent bank and non-customer. Whereas most of the CMS systems deploy a single HUB, this system can support multiple HUBs. Overall, the network is configured as a star for communication purposes thus making it possible to communicate to any unit in a max of two hops.
For recovery from failure of any one HUB, an alternate HUB can be built at a different geographical location. Both for the customer and for float fund managers, viewing of account statuses is enabled on the browser / server model, making it possible for the customer to readily and remotely access his information. Transactions are conducted on this WAN with complete security by using RSA PKI based, which is an integral part of the workflow automation platform BPRO. The bank will have its own Key Certification unit also as this is a closed user group network.
The workflow automation platform has built-in capability to log all the states of every transaction occurring on the system, thus providing a database for electronic auditing and monitoring. Traditionally such inter-branch transactions result in the burden of Inter Branch Reconciliation, which is a huge, and time consuming task. But this product implements a unique on-line IBR scheme which reconciles the transactions as they occur and hence completely eliminates the need for human intervention in reconciliation.
Reversal of Credit: If a cheque bounces, reversal can be sent. Can be used to reverse credits due to any other internal reasons also. Data Entry and cheque forwarding: Cheques drawn on a collection center can be submitted at another center. Data is entered about these instruments at this center and electronically transmitted to the actual collection center. Reports: A wide range of reports are available at the BB, CC, HUB and the HO. Some of them are -
Datamart: A datamart can be built at the HO by consolidating all the transaction data and analyses of different have been built. These are of type - customer based, branch based, region based, system performance based etc. Back-up and garbage clearance: The system automatically backs-up the databases at regular intervals which is automatically moved / can be moved onto a secondary backup device.