This lesson covers the principles and practicalities of investing surplus cash, requiring treasurers to balance the need for security, accessibility, flexibility, and yield.

5.1. Key Cash Investment Considerations

When investing surplus cash, treasury must balance the need for safety, liquidity, and yield. The ACT syllabus identifies the “key cash investment considerations such as security, accessibility, flexibility, maturity and yield” as fundamental .

• Security: The protection of principal is paramount.

• Liquidity: Funds must be accessible when needed.

• Yield: The return on investment must be competitive.

5.2. Key Investment Products

The investment of surplus cash can be achieved through various vehicles, primarily in short-term money market instruments:

• Money Market Funds: Pooled investments in high-quality, short-term debt.

• Commercial Paper (ECP and USCP): Short-term corporate debt.

• Bank Instruments: Fixed deposits and other instruments.

• Repos (Repurchase Agreements): Short-term borrowing instruments.

5.3. Linking Investment to Liquidity Forecasting

Investment decisions must be based on the organisation’s forecasted cash position. Treasury should ensure sufficient funds are available to meet obligations while maximising returns on surplus cash. The decision between borrowing and investing is influenced by the availability of cash and the relative cost of funds.