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Short-term Investment Strategies to Manage Financial Risk

Short-term investment is any period up to one year. It covers:

  • the investment of overnight surplus cash;
  • the investment of general working capital;
  • the investment of funds set aside for a particular purpose (e.g. to fund an acquisition or to return to shareholders); and
  • the investment of funds received from a recent divestment.

The report reminds the reader that: It is desirable to have a single short-term investment policy, irrespective of the investment circumstances, will allow the treasury team responsible for investing cash to manage the investment risk in a consistent manner.

This basic and thorough guide describes the processes and activities in managing risk in short term investments:

  • setting and implementing investment strategies:
    • the strategy-setting process
    • the policy-setting process
  • setting objectives: security, liquidity, yield
  • identifying invisible funds
    • cash position forecasting
    • global cash mobilzation
    • decision making responsibility
  • dentifying sources of risk
    • market risk: % rate risk, FX risk
    • counterparty risk
    • liquidity risk
    • other risks
  • managing risk
  • what an investment policy should contain.

Read more in the full guide here.

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