ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations
A company's treasurer has surplus cash that will not be needed for several months. Which of the following is the most appropriate treasury objective when deciding where to place the cash?
The treasurer should balance security and liquidity against return. Surplus cash needed within months must be safe and accessible when required, yet still earn a reasonable yield. Chasing maximum return, holding idle non-interest balances or buying long-term equities fails this balance of objectives.
- AMaximise the return regardless of the risk of loss of the capital
- BBalance the need for security and liquidity against the return earnedCorrect
- CKeep the whole amount in a non-interest-bearing current account
- DInvest in long-term equity shares to achieve capital growth
Explanation
Short-term surplus cash should be invested so that the capital is secure and available when needed, while still earning a reasonable return. Ignoring risk or placing funds in long-term equities conflicts with the need for security and liquidity. Holding it all in a non-interest account earns nothing unnecessarily.
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