Liquidity mix, Financial Management

Assignment Help:

I am facing some problems in my assignment of Liquidity Mix. Can anybody suggest me the proper explanation for it?


Related Discussions:- Liquidity mix

What are the drawbacks of benchmarking, What are the Drawbacks of benchmark...

What are the Drawbacks of benchmarking -  Benchmarking systems and programmes can be costly and time consuming -  Diversity and complexity of information can 'overload 'mana

Cost control strategies in organisations, 1. List the common elements of a ...

1. List the common elements of a submission for a major resource acquisition (purchase) 2. What is the difference between: A fixed asset and current asset? 3. If you worked i

Auction technique, Auction Technique Auction is the most common method ...

Auction Technique Auction is the most common method to sell Government Securities. Other methods include tap sales, syndication and book building process. Presently many countr

Demerits of pay back method, Demerits of Pay Back Method:- (i) It ignor...

Demerits of Pay Back Method:- (i) It ignores the Cash Flows after the Pay Back Period: - The main shortcoming of this method is that it completely ignores all cash inflows subs

Municipal securities, Municipal Securities are debt securities ...

Municipal Securities are debt securities issued by a State, Municipality or a County in order to finance its capital expenditures. These securit

Explain about shareholders equity, Does the shareholders' equity represent ...

Does the shareholders' equity represent the savings a company has accumulated through the years? No. The number which shows in the Shareholder's Equity of a company that was fo

Define forward exchange rate will be an unbiased predictor, Explain the con...

Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate. Answer:  the conditions when forward exchange rate

Treasury bonds, Bonds issued by the government are termed as treasury...

Bonds issued by the government are termed as treasury bonds. For example, dated securities issued by the government. These bonds are normally issued for longer ma

Mass and batch production, a) IPod -Line / Mass production is most suitable...

a) IPod -Line / Mass production is most suitable given that Apple can sell the standardised product to mass markets across the world. Only small variations to the production proces

The ex-dividend price of novis stock, The net income of Novis Corporation i...

The net income of Novis Corporation is $45,000.  The company has 20,000 outstanding shares and a 100 percent payout policy.  The expected value of the firm one year from now is $1,

Aliena

2/14/2013 2:21:46 AM

 

Liquidity Mix

Liquidity mix consider to the combination of several liquid investments in a company''s portfolio. There are several factors that affect the mix of liquidity. They are:

Uncertainty of Cash Flow Projections

The basic factor affecting liquidity mix is the uncertainty regarding the cash inflow and outflow estimates. Cash flows cannot be predicted along with utmost accuracy. Cash inflows involve receipts from collections, cash sales, from credit customers, disposal of old assets, proceeds from sale of investments, procurement of loans, issuance of stock, etc. All these types of inflows cannot be predicted with 100% certainty. For example, the past records of accounts receivables may reveal an average collection period of 30-45 days. Based upon the past data, one cannot really predict that all the accounts receivables would be collected by 45 days. If you approximate so and prepare the cash budget consequently, you may at times find surplus availability of cash throughout some period for investment. It may so happen that one or two customers become bankrupt and their balances to be written off. So uncertainty prevails. Cash outflows involve payment to creditors, payments to meet all the planned retirement, operating expenses, of bonds or loans etc. There is as well some amount of uncertainty regarding the period and magnitude of outflows. So, cash budget though serves as an important tool for estimating the surplus of cash, cannot be relied upon with 100% certainty for timing and magnitude of cash inflows and outflows, finally affecting liquidity mix.

Management Policies

The liquidity mix is as well as determined by the policies and decisions of the management. It depends on the risk-return perceptions and attitude of the management. If the management is risk-averse, will choose to maintain liquid cash balance lying idle without return than to invest in risky short-term securities. It may as well invest some money in Treasury bill types of securities that are risk-free. However if the management prefers a higher return over liquidity it may opt for high-risk high-return securities.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd