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A disciplined approach for evaluating investment solutions
A decision to seek out additional or incremental return cannot be taken in isolation: it will touch on many areas of investment policy and an organization’s overall approach to the cash management process.
Rather than targeting a particular yield or return at the outset, treasurers first need to assess their organization’s risk tolerance, liquidity requirements and the resources available to oversee an investment strategy. Once these have been determined, they can then work back to see what scope there is to improve yield.
By asking the questions outlined in this PDF, some organizations may discover there is far greater potential to increase return than they may have previously assumed. Others may find their need for principal preservation and access overrides all investment considerations. In either case, a thorough analysis of a company’s own tolerances, investment parameters and resources will help ensure that any investment strategy is realistic, sustainable and fully aligned with the organization’s agreed requirements for security, liquidity and return.
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A successful cash investment strategy will meet an organization’s particular requirements for security, liquidity and yield. In any market environment, corporate treasurers must preserve adequate capital and ensure sufficient liquidity to meet business needs. At the same time, they will consider how best to improve the return on their surplus cash.
Though short-term interest rates remain close to zero, Fed “tapering” has begun and rates will inevitably rise. As treasurers look to navigate a challenging rate environment, the various implications of aiming for higher yield should be assessed carefully. Organizations may need to reassess their investment policy, their view of acceptable investments, their risk tolerance and how all of this might impact their reporting and accounting. In this PDF, we present seven action points that organizations need to address when deciding if seeking additional investment income is an appropriate and feasible course of action.
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