This lesson covers the principles of short-term investing and borrowing, including the criteria for selecting investment products and funding solutions.

6.1 Key Considerations for Cash Investment

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” . The AFP’s Treasury Analyst Learning Journey also includes a specific module on “Managing Short-Term Investing and Borrowing,” designed to provide junior treasury analysts with the foundational knowledge needed to contribute effectively .

Key investment products include:

  • Money market funds: Pooled investments in short-term, high-quality debt instruments .

  • Commercial paper (ECP and USCP): Short-term, unsecured promissory notes issued by corporations .

  • Bank instruments: Short-term deposits and other instruments offered by banks .

  • Repos (Repurchase Agreements): Short-term borrowing instruments where the borrower sells securities to the lender with an agreement to repurchase them later .

6.2 Short-Term Borrowing Solutions

When the organisation faces a funding shortfall, treasury must arrange borrowing. The ACT syllabus requires the learner to “Evaluate the most appropriate short-term borrowing solution for a business using calculations where relevant” . Key solutions include:

  • Overdrafts: A flexible, uncommitted facility allowing the company to draw beyond its account balance .

  • Committed facilities (Revolving Credit Facilities): A line of credit where the bank is legally obligated to provide funds .

  • Money market lines: Short-term borrowing directly in the wholesale money market .

  • Bills of exchange and term loans: Other forms of short and medium-term borrowing .
    The decision between borrowing and investing is influenced by the availability of cash and the relative cost of funds.

6.3 Linking Cash Investment to Liquidity Forecasting

The syllabus also highlights the importance of “Linking cash investment to liquidity forecasting” . Short-term investment decisions should be based on the organisation’s forecasted cash position, ensuring that sufficient funds are available to meet obligations while maximising returns on surplus cash. This is why investing surplus cash is included as a core cash management activity by ACT .

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