BANKING AND FINANCIAL INSTITUTIONS

CASH AND MARKETABLE SECURITIES

Research and review the following topics:
1. Discuss what is Cash and Marketable Securities
- Cash and Marketable Securities means all monetary and non-monetary items belonging
to Guarantor and its subsidiaries (and Guarantor’s share of cash and maketable
securities of entities in which Guarantor owns and interest without duplication), without
duplication, that are treated as cash in accordance with generally accepted accounting
principles, consistently applied, plus all cash equivalents, including, without limitation,
all investments (including, without limitation, investments of or by purchase or other
acquisition of stock or other securities or by means of loan, advance, capital
contribution, guaranty or other debt or equity participation or interest in any other
entity or otherwise, and partnership and joint venture interests of such entity) of the
Guarantor and its subsidiaries (and Guarantor’s share of cash and maketable securities
of entities in which Guarantor owns
2. Explain the following reasons for holding or investing in Securities:
a. Transaction motive
- The transactional motive refers to individuals holding money for the sake of buying
goods and services to improve their quality of life.
b. Safety motive
- The safety motive or precautionary motive is the need to hold cash to meet any
contingencies in future. It provides a cushion or buffer to withstand some unexpected
emergency. The precautionary amount of cash to be kept depends upon the
predictability of cash flows.
c. Speculative motive
- The transactional motive refers to individuals holding money for the sake of buying
goods and services to improve their quality of life.
3. Explain what is Government securities
-
4. Discuss the following under Marketable Government Securities:
a. Securities
- Marketable securities are unrestricted short-term financial instruments that are issued
either for equity securities or for debt securities of a publicly listed company. The issuing
company creates these instruments for the express purpose of raising funds to further
finance business activities and expansion. Governments also issue debt securities of this
type in the form of T-bills, used for funding of public projects and expenditures.
b. Treasury Notes
- A Treasury note is a U.S. government debt security with a fixed interest rate and
maturity between two and 10 years. Treasury notes are available either via competitive
bids, in which an investor specifies the yield, or non-competitive bids, in which the
investor accepts whatever yield is determined. A Treasury note is just like a Treasury
bond, except that they have differing maturities—T-bond lifespans are 20 to 30 years
c. Treasury Bills
- Treasury Bills or popularly known as T-Bills are peso-denominated short-term fixed
income securities issued by the Republic of the Philippines through its Bureau of
Treasury.
d. Compensating balance
- A compensating balance is a minimum deposit that must be maintained in a bank
account by a borrower. The borrower cannot use the money but is required to disclose
it in the borrower's notes attached to its financial statements.
e. Operating cycle
 - The operating cycle is the average period of time required for a business to make an
initial outlay of cash to produce goods, sell the goods, and receive cash from customers
in exchange for the goods.
 Give example of an operating cycle relate in business landscape
- Cindy owns a clothing store. Her company's operating cycle would begin when she
started paying for the materials to make various garments. The operating cycle wouldn't
end in this case until all clothing items are produced, sold and the cash has been
received from various customers.
f. Internal control of cash
- Internal cash control systems can include your organization's governance, all company
policies, and segregation of duties within your company. Cash controls refer to all cash
management policies and procedures within your organization.
5. Explain what is conversion cycle and give example
- The cash conversion cycle is the amount of time a company needs or takes to convert
funds invested in production and sales to cash. It is used to measure the company's
efficiency in using its working capital. For example, if it takes your business an average
of 14.2 days to turn over inventory (DIO = 14.2), 15.6 days to receive payment from
customers (DSO = 15.6), and 17.3 days to pay suppliers (DPO = 17.3), your cash
conversion cycle would be 12.5 days (or 14.2+15.6 — 17.3).
6. Discuss the following strategies available to the firm in managing its conversion cycle:
a. Delay payment of accounts payable as far as you can without sacrificing the credit
standing of the firm.
- Late payments can result in a number of problems, including: Duplicate payments: If an
invoice is not paid on time, the vendor is likely to send follow-up invoices, and this can
result in duplicate payments
b. Inventory turnover should be quick as possible.
- Inventory turnover measures how many times in a given period a company is able to
replace the inventories that it has sold. A slow turnover implies weak sales and possibly
excess inventory, while a faster ratio implies either strong sales or insufficient inventory.
High volume, low margin industries—such as retailers and supermarkets—tend to have
the highest inventory turnover.
c. Accounts receivable should be collected as soon as possible but be sure to take into
consideration the possible loss of future sales.
- Effective accounts receivable management ensures that money owed by customers for
goods delivered or services provided is paid to the company in a timely manner.
Effective accounts receivable management enhances company cash flow by preventing
nonpayment or late payment
d. Some firms just do not use one type of strategy.
- Perhaps one of the most important reasons why firms do not engage in strategic
management is that they fear the “unknown”. Further, the managers might be
uncertain of their abilities to learn new skills, of their aptitude with new systems, and
their ability to take on new roles
7. Explain what is Float and how it works.
- Float is money in the banking system that is counted twice, for a brief time, because of
delays in processing checks. Float distorts the measurement of the money supply and
complicates the implementation of monetary policy.
8. Discuss the following Float:
a. Collection Float
- The term 'collection float' means the time between the payment made by the debtors
or customers and the time when funds available for use in the company's bank account.
b. Disbursement float
- -Money that a person or company has spent but that has not yet been taken out of
one's bank account. A disbursement float occurs when a person or company writes a
check; when the check is deposited, it usually takes a few days for the payment to clear.
The disbursement float may be thought of as the difference between what is in one's
 bank account and what the bank shows to be in the account as the result of an
uncleared check.
c. Mail float
- Mail float is the time required for a check payment to travel from the payer to the payee
through the postal system. The duration of this mail float will cost the recipient interest
income, since the funds have not yet arrived, and so cannot be invested
d. Processing Float
- Processing float is the time period between when a payee receives a payment from the
payer and deposits it. A lengthy processing float reduces the availability of funds for the
payee. The duration of the processing float is driven by the payee's internal processes,
staff training, and the existence of any work backlog.
e. Clearing float
- clearing float, the delay between deposit of a payment and when spendable funds
become available to the firm. This refers to the time it takes for a cheque to clear.
9. Explain the following techniques in Cash Management:
a. Taking advantage of Float
- -Individuals and companies alike can use float to their advantage, gaining time or
earning interest before payment clears their bank. Playing with float can spill into the
realm of wire fraud or mail fraud if it involves the use of others' fund
b. Enhancing collection process
1. Concentrating banking
- Concentration banking is the practice of shifting the funds in a set of bank accounts into
an investment account, from which the funds can be more efficiently invested.
Concentration banking usually requires that an organization keep all of its bank accounts
with a single bank.
2. Lockbox system
- A lockbox is a bank operated mailing address to which a company directs its customers
to send their payments. The bank opens the incoming mail, deposits all received funds
in the company's bank account, and scans the payments and any remittance information
3. Direct collection
- Direct Collection. It is a service for handling export draft collections in which the
exporter's financial institution provides the forms that bear the financial institution's
own letterhead for mailing documents to the buyer's financial institution for collection.
4. Automated clearinghouse debit
- Automated clearinghouse (ACH) payments are electronic payments that pull funds
directly from your checking account. Instead of writing out a paper check or initiating a
debit or credit card transaction, the money moves automatically. ACH can make your life
easier, but it can also cause problems.
5. Minimize disbursement
- When managing cash disbursements, a company should endeavor to increase the
amount of time present in the disbursement cycle. In other words, it is appropriate to
delay making payments until they come due in order to have use of available cash for as
long as possible
10. Discuss the following sources of short-term funds and give its example.
a. Accounts payable
- Accounts payable is a short-term source of funds that refers to the money owed by a
company to its suppliers or vendors for goods or services provided on credit. It
represents the liabilities of a company for purchases made on credit terms. Accounts
payable are generally due within a short period, usually 30 to 90 days. By utilizing
accounts payable, a company can delay the payment for its purchases and use the funds
for other short-term needs. For example, if a company purchases raw materials from a
supplier on credit, it will have an accounts payable balance until the payment is made.
b. Stretching payable
- Stretching payable is a strategy used by businesses to extend the payment terms with
their suppliers beyond the standard credit period. This allows the company to hold onto
their cash for a longer time, effectively gaining some short-term funds. For example, a
 company may negotiate with a supplier to extend the payment terms from 30 days to
60 days, giving them an extra 30 days to use the funds for other purposes.
c. Accruals
- Accruals refer to expenses incurred by a company but not yet paid or recorded in the
financial statements. They represent liabilities that are recognized and recorded as they
are incurred, even if the payment is not made immediately. Accruals are a source of
short-term funds because they temporarily increase the company's cash flow by
deferring the payment obligation. An example of an accrual is accrued salaries or wages,
where the company recognizes the expense for employee salaries even if the payment is
due at a later date.
d. Financing Mix
- Financing mix refers to the combination of different sources of funds used by a company
to meet its short-term financing needs. It involves utilizing a mix of internal and external
sources to ensure the availability of funds for day-to-day operations. The financing mix
can include sources such as bank loans, lines of credit, trade credit, issuing commercial
paper, and utilizing retained earnings. By diversifying the sources of funds, companies
can manage their short-term financing requirements effectively.

KINDLY STATE BELOW YOUR REFERENCES OF THIS TOPIC:

1. https://www.lawinsider.com/dictionary/cash-and-marketable-securities#:~:text=CASH%20AND
%20MARKETABLE%20SECURITIES%20means%20all%20monetary%20and%20non%2Dmonetary,cash
%20in%20accordance%20with%20generally
2.https://corporatefinanceinstitute.com/resources/knowledge/finance/marketable-securities
3. https://www.investopedia.com/articles/06/cashconversioncycle.asp

Fm2-2, Banking and Financial Institutions

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