Simply, find and describe two (2) things to correct within this figure?
to maintain zero balances with all their excess cas balances by purchasing marketable securities. account. Most banks have accounts that allow corporate clients to write checks on zero balance accounts with the understanding that when the check is presented for payment, money will be moved from the interest-bearing account to the appropriate account These examples illustrate the way banks help manage excess cash for their corporate customers. The next section explains how companies manage their own excess cash held for other than immediate transaction purposes, they should be converted from on their excess cash. Marketable Securities The firm may hold excess funds in anticipation of a cash outlay. When funds are being cash into interest-earning marketable securities.? The financial manager has a virtual supermarket of securities from which to choose. Among the factors influencing that choice are yield, maturity, minimum investment required, safety, and marketability. Under normal conditions, the longer the maturity period of the security, the higher the yield, as indicated in Figure 7-5. The problem in "stretching out the maturity of your investment is that you may have to take a loss. A $5,000 Treasury note issued initially at 5.5 percent, with three years to run, may only be worth $4,800 if the going interest rate climbs to 7 percent and the investor has to cash in before maturity. This risk is considerably greater as the maturity date is extended. A complete discussion of the "interest rate risk is presented in Chapter 16, "Long-Term Debt and Lease Financing." The various forms of marketable securities and investments, emphasizing the short term, are presented in Table 7-1. The key characteristics of each investment will be reviewed along with examples of yields at six different time periods. As shown in Table 7-1, yields are given for six periods starting with March 22, 1980, when interest rates were extremely high because of double-digit inflation, and ending with January 9, 2015, when interest rates were very low. Perhaps the July 2000 rates represent more normal rates than any of the other six periods. The low rates in 2003 represented an attempt by the Federal Reserve Board to stimulate an economy that had gone into recession during March 2001 and whose recovery was uncertain due to the terrorist attacks of 9/11/2001. Interest rates in 2010 through 2015 were even lower than in 2003 as the Federal Reserve kept rates low to help the economy recover from the worst financial crisis and longest recession since the Great Depres- sion of the 1930s. ?The one possible exception to this principle is found in the practice of holding compensating balances at com- mercial banksa topic for discussion in Chapter 8. Chapter 7 Current Asset Management Figure 7-5 An examination of yield and maturity characteristics A. Short-Term Treasury Bills Yield (percent) 3 2 1 1 6 3 Time to maturity (months) B. Long-Term Government Securities Yield (percent) 6 4 2 30 10 20 Time to maturity (years) The Fed maintained a low interest rate environment throughout 2015 and indicated that rates would stay low for a while. In a press release from December 17, 2014, the Board of Governors said. to maintain zero balances with all their excess cas balances by purchasing marketable securities. account. Most banks have accounts that allow corporate clients to write checks on zero balance accounts with the understanding that when the check is presented for payment, money will be moved from the interest-bearing account to the appropriate account These examples illustrate the way banks help manage excess cash for their corporate customers. The next section explains how companies manage their own excess cash held for other than immediate transaction purposes, they should be converted from on their excess cash. Marketable Securities The firm may hold excess funds in anticipation of a cash outlay. When funds are being cash into interest-earning marketable securities.? The financial manager has a virtual supermarket of securities from which to choose. Among the factors influencing that choice are yield, maturity, minimum investment required, safety, and marketability. Under normal conditions, the longer the maturity period of the security, the higher the yield, as indicated in Figure 7-5. The problem in "stretching out the maturity of your investment is that you may have to take a loss. A $5,000 Treasury note issued initially at 5.5 percent, with three years to run, may only be worth $4,800 if the going interest rate climbs to 7 percent and the investor has to cash in before maturity. This risk is considerably greater as the maturity date is extended. A complete discussion of the "interest rate risk is presented in Chapter 16, "Long-Term Debt and Lease Financing." The various forms of marketable securities and investments, emphasizing the short term, are presented in Table 7-1. The key characteristics of each investment will be reviewed along with examples of yields at six different time periods. As shown in Table 7-1, yields are given for six periods starting with March 22, 1980, when interest rates were extremely high because of double-digit inflation, and ending with January 9, 2015, when interest rates were very low. Perhaps the July 2000 rates represent more normal rates than any of the other six periods. The low rates in 2003 represented an attempt by the Federal Reserve Board to stimulate an economy that had gone into recession during March 2001 and whose recovery was uncertain due to the terrorist attacks of 9/11/2001. Interest rates in 2010 through 2015 were even lower than in 2003 as the Federal Reserve kept rates low to help the economy recover from the worst financial crisis and longest recession since the Great Depres- sion of the 1930s. ?The one possible exception to this principle is found in the practice of holding compensating balances at com- mercial banksa topic for discussion in Chapter 8. Chapter 7 Current Asset Management Figure 7-5 An examination of yield and maturity characteristics A. Short-Term Treasury Bills Yield (percent) 3 2 1 1 6 3 Time to maturity (months) B. Long-Term Government Securities Yield (percent) 6 4 2 30 10 20 Time to maturity (years) The Fed maintained a low interest rate environment throughout 2015 and indicated that rates would stay low for a while. In a press release from December 17, 2014, the Board of Governors said
