FNCE 3P93 Lecture Notes - Lock Box, Passbook, Transaction Cost
19 Dec 2013
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Key concepts and skills: understand how firms manage cash, understand float, understand how to accelerate collections and manage disbursements, understand the characteristics of various short-term securities. Target cash balance 19. 2: a firm"s desired cash level is determined by the trade-off between carrying costs and shortage costs, adjustment costs (shortage costs) costs associated with holding too little cash. Understanding float 19. 3: float difference between cash balance recorded in the cash account and the cash balance recorded at the bank, disbursement float, generated when a firm writes cheques, available balance at bank book balance. Understanding float - continued: collection float, cheques received increase book balance before the bank credits the account, available balance at bank book balance. One of the goals of float management is to try and reduce the collection delay. There are several techniques that can reduce various parts of the delay. I: your company does business nationally and currently all cheques are sent to the headquarters in toronto.
