Page 59 - FINAL CFA SLIDES DECEMBER 2018 DAY 11

Cash Management Investment Session Unit 11:

Policy, p86 38. Working Capital Management

• Objective of cash management is to earn a market return without taking on much risk, either
liquidity risk or default risk. Firms invest cash that may be needed in the short term in securities

of relatively high credit quality and relatively short maturities to minimize these risks. It is
advisable to have a written investment policy statement, which addresses:

• purpose and objective of the investment portfolio,
• strategy to be employed to achieve those objectives,
tanties
• types of securities that will be used
• who is allowed to purchase securities,

• who is responsible for complying with company guidelines, and
• what steps will be taken if the investment guidelines are not followed.
• limitations on the specific types of securities permitted for investment of short-term

funds,
• limitations on the credit ratings of portfolio securities, and

• limitations on the proportions of the total short-term securities portfolio that can be
invested in the various types of permitted securities.

An investment policy statement should be evaluated on how well the policy can be expected
to satisfy the goals and purpose of short-term investments, generating yield without taking on
excessive credit or liquidity risk. The policy should not be overly restrictive in the context of

meeting the goals of safety and liquidity.