ABSTRACT
Inflows and outflows of funds are generally uncertain, especially for large multinational corporations with sales and production activities throughout the world. It is therefore important for companies to maintain liquidity.The amount of liquidity and the form it should take constitute the topic of working-cash (or workingcapital) management. Liquidity can take a number of forms, including currency, bank deposits, overdraft facilities,and short-term readily marketable securities. These involve different degrees of opportunity cost in terms of forgone earnings available on less liquid investments.However,there are such highly liquid short-term securities in sophisticated money markets that virtually no funds have to remain completely idle. In some locations there are investments with maturities that extend no further than “overnight,” and there are overdraft facilities which allow firms to hold minimal cash balances.This makes part of the cash management problem similar to the problem of where to borrow and invest.
