The management of cash and marketable securities is one of the key areas of working capital management. Since cash and marketable securities are the firm’s most liquid assets, they provide the firm with the ability to meet its maturing obligations.
Cash refers to cash in hand and cash on demand deposits (or current accounts). It therefore excludes cash in time deposits (which is not immediately available to meet maturing obligations).
Marketable securities are short-term investments made by the firm to obtain a return on temporary idle funds. Thus when a firm realises that it has accumulated more cash than needed, it often puts the excess cash into an interest-earning instrument. The firm can invest the excess cash in any (or a combination) of the following marketable securities.
a) Government treasury bills
b) Agency securities such as local governments securities or parastatals securities
c) Banker’s acceptances, which are securities, accepted by banks
d) Commercial paper (unsecured promissory notes)
e) Repurchase agreements
f) Negotiable certificates of deposits
g) Eurocurrencies etc.