Слайд 1Chapter 5
Cash or Liquid Asset Management
Слайд 2Learning Objectives
Manage your cash and understand why you need liquid
assets.
Automate your savings.
Choose from among the different types of financial
institutions that provide cash management services.
Compare the various cash management alternatives.
Compare rates on the different liquid investment alternatives.
Establish and use a checking account.
Transfer funds electronically and understand how electronic funds transfers (EFTs) work.
Слайд 3Managing Liquid Assets
Cash management is deciding how much to keep
in liquid assets and where to keep it.
With less
regulation and more competition, banks and other financial institutions offer an array of account types and investments.
Слайд 4Managing Liquid Assets
Cash management means not only making choices from
among alternatives, but maintaining and managing the results of those
choices.
Liquid assets have little risk and therefore a low expected return.
Слайд 5Automating Savings:
Pay Yourself First
Use cash management alternatives to have
savings automatically deducted from your paycheck.
Automating your savings means
you are less likely to spend that money.
Remember Principle 13: Pay yourself first
The earlier you start to save, the easier it is to achieve your goals.
Remember Principle 2: The time value of money
Слайд 6Financial Institutions
Financial institutions are categorized as:
Deposit-type financial institutions – referred
to as “banks”
Nondeposit-type financial institutions – such as mutual funds
and brokerage firms
Слайд 7“Banks” or Deposit-Type Financial Institutions
Financial institutions that provide traditional checking
and savings accounts are called “banks” or deposit-type institutions.
Слайд 8“Banks” or Deposit-Type Financial Institutions
Types of “banks”:
Commercial Banks
Savings and Loan
Associations
Savings Banks
Credit Unions
Слайд 9“Banks” or Deposit-Type Financial Institutions
Commercial Banks – offer the widest
variety of services including checking and savings accounts, credit cards,
safety deposit boxes, and lending.
15,000 commercial banks in 65,000 locations in U.S.
Offer online banking.
Слайд 10“Banks” or Deposit-Type Financial Institutions
Savings and Loans – S&Ls or
“thrifts” were originally established to provide mortgages to depositors.
Слайд 11“Banks” or Deposit-Type Financial Institutions
Types of S&L’s:
Mutual S&L – depositors/owners
receive dividends.
Corporate S&L – depositors receive interest.
5,000 S&Ls in U.S.
with 25,000 offices.
Higher interest on savings than commercial banks.
Слайд 12“Banks” or Deposit-Type Financial Institutions
Savings Banks – most are depositor-owned
and are found in the northeast part of U.S.
Are like
a mutual S&L because they pay dividends rather than interest.
Primary purpose is to provide mortgages to depositors.
Слайд 13“Banks” or Deposit-Type Financial Institutions
Credit Unions – not-for-profit cooperatives established
by churches, schools, and corporations, opened only to members.
Tax-exempt status
Pay
higher interest rates than commercial banks
Lower fees and more convenient locations
Слайд 14Nondeposit-Type Financial Institutions
Mutual Fund – investment fund that raises money
from investors, pools that money, invests it, and is professionally
managed.
Слайд 15Nondeposit-Type Financial Institutions
Stockbrokerage Firms – offer investments and a wide
variety of cash management tools, including financial counseling, credit cards,
and their own money market mutual funds.
Слайд 16What to Look For in a
Financial Institution
Choose among the alternatives
by asking:
Which financial institution offers the kind of services you
need and want?
Is your investment safe? Is it insured? Is the financial institution sound?
What are the costs and returns associated with the services you want? Are there minimum deposit requirements or hidden fees?
Слайд 17Cash Management Alternatives
Cash management alternatives include:
Checking Accounts
Interest bearing –
NOW accounts
Non-interest bearing – demand deposits
Savings Accounts – time deposit
Слайд 18Cash Management Alternatives
Cash management alternatives include:
Money Market Deposit Account (MMDA)
– variable interest rates
Certificates of Deposit (CD) - pays a
fixed rate of interest while funds are on deposit for a period of time.
Слайд 19Money Market Mutual Funds
Money Market Mutual Funds (MMMF’s) - an
alternative to traditional liquid investments.
Draws together the savings of
many individuals, investing those funds in large, creditworthy debt.
Usually a higher yield than bank money market accounts and includes check writing privileges.
Shares are purchased at $1 per share, interest rate changes daily.
Слайд 20Asset Management Account
A comprehensive financial services package offered by a
brokerage firm, including a checking account, credit card, a MMMF,
loans, and brokerage services.
Advantages are the coordination of funds flowing in and out of the account, and one consolidated monthly statement.
Annual service charge of $50 to $125 and a large minimum balance required.
Слайд 21U.S. Treasury Bills or T-Bills
U.S. Treasury bills, or T-bills, are
short-term debt issued by the federal government.
Maturities of 3-12 months
Minimum denomination of $1,000
Very liquid, safe investment
Pay less than face value, mature at full face value. Interest in the form of appreciation.
Слайд 22U.S. Series EE Bonds
U.S. Series EE bonds are issued by
the Treasury with low denominations and variable interest rates.
Purchased
at half the face value, from $50 to $10,000.
Interest accrues until bonds reach face value at maturity.
No state or local taxes due, interest is deferred until redeemed.
Purchased at a bank, with no commission.
Слайд 23Comparing Cash Management Alternatives
Comparable Interest Rates – use the annual
percentage yield (APY) to easily compare.
Tax Considerations – taxes affect
the real rate of return on investments.
Safety – some deposits are insured
FDIC insures banks
NCUA insures credit unions
MMMF – not insured but diversified
Слайд 24Establishing and Using a Checking Account
When choosing a financial institution,
consider:
Cost
Convenience
Consideration
Balancing your checking account – compare monthly statement
with register, then reconcile.
Слайд 25The Check Clearing Act for the 21st Century or Check
21
Purpose of Check 21 was to improve efficiency by electronically
shipping checks.
How does Check 21 affect you?
Checks processed more quickly.
Items may differ on statement, listed by check number or name.
Cancelled checks may or may not be returned.
Слайд 26Other Types of Checks
Cashier’s Check - a check drawn on
the bank’s account.
Certified Check – a personal check that
has been certified as being good by the bank on which it is being drawn.
Слайд 27Other Types of Checks
Money Order – a variation of cashier’s
check, but issued by non-banks (U.S. Postal Service).
Traveler’s Checks –
similar to cashier’s checks, except they don’t specify a payee and have specific denominations.
Слайд 28Electronic Funds Transfer
Electronic funds transfer (EFT) refers to any financial
transaction that takes place electronically.
Funds move instantly without paper.
Слайд 29Electronic Funds Transfer
Examples of EFT include:
Debit card transactions
ATM transactions
Direct
deposit of paycheck
Paying mortgage and utility bills
Слайд 30Automated Teller Machines
An ATM or cash machine provides cash instantly
and is accessed through a credit or debit card.
Obvious appeal is convenience.
To use ATM, just swipe card, enter PIN, and indicate amount of cash.
Слайд 31Debit Cards
A debit card is a cross between a credit
card and a checking account.
Looks like a credit card but
acts like a checking account.
With debit cards, you are spending your own money, as opposed to borrowing money with a credit card.
Слайд 32Smart Cards
Smart cards, or “memory cards,” are a variation of
a debit card. Instead of withdrawing funds from a designated
bank account, you withdraw from an account that’s actually stored magnetically on the card.
Perform the same services as a debit or credit card
Allocated funds can run out
Some have limited issuer usage
Слайд 33Stored Value Cards – Another Way to Carry Cash
Merchant gift
cards and prepaid phone cards are examples of stored value
cards.
Stored value cards can be either:
Single purpose or “closed-loop” cards which can be used at only one store.
Multi-purpose or “open-loop” cards which can be used just like a credit card and can be reloaded.
