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Chapter 3: Q5DQ (page 219)


Short Answer

Expert verified

Investors use the treasury bills as they are highly liquid and can be easily sold whenever the investor requires cash.

Step by step solution

01

Meaning of treasury bills

The treasury bills are the short-term securities issued by the government. These bills are matured within a year from the date of issue.

02

Explanation for investing in treasury bills

The treasury bills are traded in a large active market and provide the maximum amount of liquidity to the investor. The finance manager can redeem these securities whenever they need the cash. This is why financial managers mostly use treasury bills to invest their excess cash.

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Most popular questions from this chapter

Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.

b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?

Discuss the relative volatility of short- and long-term interest rates

In the second year, Fisk Corporation finds that it can reduce ordering costs to \(2 per order but that carrying costs stay the same at \)1.60 per unit. Also, volume remains at 49,000 units per year.

b. How many orders will be placed during the year?

City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so the firm’s checks will take longer to clear the bank. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.

b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?

Knight Roundtable Co. has annual credit sales of $1,080,000 and an average collection period of 32 days in 2008. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period
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