This lesson explores the different asset classes and financial instruments available to the treasury investor.

2.1 Types of Investments for Treasury Portfolios

Treasury investment portfolios are typically focused on short-term, highly liquid, low-risk instruments. The CTP syllabus and other professional curricula cover a range of permissible instruments:

• Money Market Instruments: These are short-term, highly liquid instruments that are the mainstay of the treasury portfolio. Examples include:

  • Treasury Bills (T-Bills): Short-term obligations of the government, considered one of the safest investments . Treasury bills (T-bills) are used to describe government short-term debt.

  • Commercial Paper (CP): Short-term, unsecured promissory notes issued by large, creditworthy corporations . Commercial paper (CP) is used to describe corporate short-term debt.

  • Certificates of Deposit (CDs): Time deposits with banks that offer a fixed rate of return for a specified maturity . Certificates of deposit (CDs) are fixed-term bank deposits.

  • Banker’s Acceptances: Short-term credit instruments often used in international trade transactions.

• Fixed Income Securities: Longer-term debt instruments like bonds, used to invest surplus cash for an extended period. Fixed income securities encompass bonds and other debt instruments.

• Equities: While less common for short-term cash investments, surplus cash that is not needed for a longer horizon may be invested in a diversified equity portfolio. Equities include company stocks and shares.

2.2 Risk and Return Characteristics

Each asset class offers a different risk-return trade-off. Money market instruments offer low returns but high safety and liquidity. Fixed income securities offer moderate returns with moderate interest rate risk. Equities offer higher potential returns but with higher volatility and capital risk . The choice of instruments will depend on the portfolio’s objectives, as defined in the IPS.