This lesson examines the practical services and structures banks provide to help organisations optimise their cash and liquidity.
5.1 Bank Account Structures
The structure of bank accounts is critical for efficient cash management. Key concepts include:
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Cash Concentration: The process of sweeping surplus funds from subsidiary accounts into a central account to maximise investment returns and reduce borrowing costs. Examples include zero-balance accounts (ZBAs), target balance accounts, and overnight sweeps .
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Notional Pooling: A method of interest optimisation where balances of multiple accounts are netted for interest calculation purposes, without physically moving the funds. This reduces interest costs while maintaining individual account structures .
5.2 Payment Systems and Instruments
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Payment Systems: The infrastructure that enables the transfer of value. This includes both Real-Time Gross Settlement (RTGS) systems (for high-value, time-critical payments) and net settlement systems. The syllabus covers “clearing and settlement systems including net settlement and real time gross settlement systems” .
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SWIFT:Â The Society for Worldwide Interbank Financial Telecommunication. It provides a secure messaging network for financial institutions to send instructions for payment transactions.
5.3 Investing Surplus Cash
Any cash not required for immediate operational needs should be invested to generate a return. Key investment considerations include security, accessibility, flexibility, maturity, and yield .