FINANCIAL MANAGEMENT
Presented To Bushra Qasim
Presented By Laiba Arshad
Discipline: BBA (Hons)
SELECTING SECURITIES FOR THE
PORTFOLIO SEGMENTS
The decision to invest cash in marketable securities involves not only the
amount to invest but also the type of security in which to invest.
Our earlier partitioning of the firm’s marketable securities portfolio into three
segments helps us in making these determinations.
Ready Cash Segment:
For securities constituting the firm’s ready cash segment (R$), safety and an
ability to convert quickly into cash are primary concerns. Because they are
both the safest and the most marketable of all money market instruments.
Controllable cash segment:
Firm’s securities portfolio, the controllable cash segment (C$), holds securities
earmarked for meeting controllable outflows, such as payroll, payables, taxes,
and dividends.
Free cash segment:
For securities forming the firm’s free cash segment (F$) of its securities
portfolio, the date of needed conversion into cash is not known in advance
just like for the ready cash segment but there is no overriding need for quick
conversion.
PORTFOLIO MANAGEMENT
The larger the firm’s short-term marketable securities portfolio, the more
chance there is for specialization and economies of scale in its operation.
A large security portfolio may justify a staff solely responsible for managing it.
Such a staff can under-take research, plan diversification, keep abreast of
market conditions, and continually analyze and improve the firm’s portfolio
position.
Portfolio management is a specialized function in a firm, it is likely that a large
number of diverse securities will be considered for investment.
MONEY MARKET MUTUAL FUNDS
Money market funds sell shares to raise cash, and by pooling the funds of a
large number of small investors they can invest in large-denomination money
market
instruments.
Because of transactions costs and the large minimum cash amounts needed to
purchase some of the higher-yielding marketable securities.
The small firm has often felt that holding a short-term marketable securities
portfolio was out of the questions.
Large firms are also increasingly drawn to money market mutual funds for at
least some of their marketable securities portfolio needs.