SECTION B: Attempt any THREE questions in this section Question 2 You are the Treasury Assistant for a company. In your analysis of the company's bank accounts, you notice that the company maintains substantial credit balances in its current account. Upon enquiry, you are informed that it is the company's policy to maintain huge balances on the current account in order to reduce the risk of running out of cash. (i) Explain to management why in your view the policy of maintaining high balances on the current account is not beneficial from a treasury point of view. (2 marks) (ii) In order to manage its cash resources more prudently you have advised management to maintain a minimum balance of K1,000 on the current account. The bank pays an interest rate of 10% p.a. on deposits and charges K20 per transaction to transfer to or from the current account. From your experience the standard deviation of cash flows is K500 per day. Calculate the maximum balance that should be maintained on the current account and the return point at which transfers would be made into or out of the current account. (8 marks) SECTION B: Attempt any THREE questions in this section Question 2 You are the Treasury Assistant for a company. In your analysis of the company's bank accounts, you notice that the company maintains substantial credit balances in its current account. Upon enquiry, you are informed that it is the company's policy to maintain huge balances on the current account in order to reduce the risk of running out of cash. (i) Explain to management why in your view the policy of maintaining high balances on the current account is not beneficial from a treasury point of view. (2 marks) (ii) In order to manage its cash resources more prudently you have advised management to maintain a minimum balance of K1,000 on the current account. The bank pays an interest rate of 10% p.a. on deposits and charges K20 per transaction to transfer to or from the current account. From your experience the standard deviation of cash flows is K500 per day. Calculate the maximum balance that should be maintained on the current account and the return point at which transfers would be made into or out of the current account. (8 marks)