A treasurer of a municipality with a municipal pension fund has required that its in-house portfolio manager invest all funds in the highest investment grade securities that mature in one month or less. The treasurer believes that this is a safe policy. Comment on this investment policy.

Answer: It is reasonable to assume that the municipality will not need to redeem proceeds from the pension fund to make current payments to beneficiaries. Instead, the investment objective is to have the fund grow in order to meet future payments that must be made to retiring employees. Investing in just high investment grade securities that mature in one month or less exposes the pension fund to substantial interest

True False