INVESTMENT CRITERIA

A. The safety of the principal being

invested
B. Maturity and Marketability
 INVESTMENT OPTION
 Bankers' acceptances
 Bond near maturity dates
 Certificate of deposit (CD)
 Commercial Paper
 Money market fund
 Repurchase agreement
 U. S Treasury issuance
 INVESTMENT
STRATEGIES
 Earning credit strategy
 Matching strategy
 Laddering strategy
 Tranched cash flow strategy
 short-term tranche
 medium-term tranche
 long-term tranche
 OUTSOURCED INVESTMENT
MANAGEMENT
A treasurer may conclude that investment
management is not a core competency or have
little funding for a professional in-house
investment staff.
 RISK-REDUCTION
STRATEGIES
A simple risk-reduction strategies:
• Avoid investments in the securities of any single
entity, in favor of investments solely in one or more
money market funds.
• Provide instant diversification across a multitude
of issuers, with the attendant risk being constantly
reviewed by a staff of risk management
professionals.
 ACCOUNTING FOR
INVESTMENTS
In accounting, marketable securities are grouped
into one of the following three categories at the time
of purchase and reevaluated periodically to see if
they still belong in the designated categories:
 

1. Available for sale - This category includes

both debt and equity securities. It contains those
securities that do not readily fall into either of
the following two categories.
 ACCOUNTING FOR
INVESTMENTS
2. Held to maturity - includes only debt
securities for which the company has both the
intent and ability to hold them until their time of
maturity.
 

3. Trading securities - includes both debt

and equity securities that the company intends to
sell in the short term for a profit.
 Transfers between Available-for-Sale
and Trading Investments
An investment designated as a trading
security can be shifted into the available for sale
portfolio of investments with no recognition of a
gain or loss on the value of the investment.
When a gain or loss has arisen since the last
adjustment to fair value, this amount should be
recognized at the time of the designation
change.
 Accounting for Investments in Debt
Securities
A debt security can be classified as either:
1. Held for trading or available for sale
2. Held to maturity
The only exceptions to this rule are (1) the periodic
amortization of any discount or premium from the face
value of a debt instrument, depending on the initial
purchase price; and (2) clear evidence of a permanent
reduction in the value of the investment
Transfers of Debt Securities among
Portfolios
 Recognition of Deferred Tax Effects on
Changes in Investment Valuations
The tax impact varies by investment type, and is
noted as follows:

Gains or losses on the trading portfolio

• The deferred tax effect is recognized in the income
statement.
 Recognition of Deferred Tax Effects on
Changes in Investment Valuations
Gains or losses on the available - for - sale portfolio.
• The same treatment as noted for gains or losses on the
trading portfolio, except that taxes are noted in the
Other Comprehensive Income section of the income
statement.
Gains or losses on the held - to - maturity portfolio.
 

• There is no tax recognition if changes in value are

considered to be temporary in nature.
 INVESTMENT REPORTING
A summary-level report itemizing the
investment, current market value and return on
investment for each investment made.
 INVESTMENT MANAGEMENT
CONTROLS
1. Create and approve a cash forecast.
2. Record proposed investment and duration on the cash forecast
3. Obtain approval of investment recommendation
4. Obtain and document quotes for each investment
5. Issue a signed investment authorization form to the issuer
6. Match authorization form to transaction report
7. Forward records to accounting for storage
8. Periodically match the approved cash forecast, quote sheets,
and investment authorization to actual investments completed
9. Assign securities custody to independent party
 INVESTMENT MANAGEMENT
POLICIES
Used to define the level of risk that a company is
willing to tolerate and defines the exact types of
investment vehicles to be used (or not used).

A. Level of allowable liquidity

B. Risk
C. Return on Investment
 Examples of Investment policies that a
treasurer can adopt in terms of:
1. Funds Investment
2. Investment in Debt Securities Accounting
3. Investment Portfolios, Transfer of Debt
Securities Among
4. Investment Portfolios, Transfer of Debt
Securities Among
 INVESTMENT MANAGEMENT
PROCEDURES
The detailed procedures used for initiating an
investment, as well as for transferring investments
between portfolios, are shown in this section
a. Objective
b.Liquidity
c. Diversification
d.Maturity Limits
e. External investment management
 THANK YOU
AND
HAVE A GOOD
DAY!