Question 2

As a corporate treasurer in Melton Bhd, you are responsible to manage the company cash flow and liquidity. Hence, you are expected be able to identify how soon funds will be needed by the company. Currently, the company has temporary excess funds of RM3 million and wish to invest in the financial market for 30 days.

Required:

1. Explain FOUR (4) types of financial instruments that might be suitable for Melton Bhds short-term investment? You explanation should include the risk and return trade-offs. (13 marks)

2. Advice Melton Bhd which is the best alternative for below financial instruments, if compare to the bond equivalent yields over a 365 day year.

(i) Commercial paper with its rates of 3.25% discount (5 marks)

(ii) Certificates of deposit with its rates of 3.26% (5 marks)

(iii) What is the opportunity cost for the selected financial instrument? (2 marks)

[Total: 25 Marks]