Cash Investment

One of the treasurer's responsibilities is to invest cash surpluses to generate interest from investments. Investments, particularly liquidity and risk level, must be carefully selected based on anticipated cash needs and returns.

Generally, the higher the risk of investments, the greater the expected gain. It is worth noting, however, that companies often primarily opt for low-risk investments, made within the framework defined by the investment policy. This policy establishes:

• Group objectives (capital preservation, alignment with liquidity needs, limitation of counterparty risk, etc.)
• Authorized investment vehicles (term deposits, certificates of deposit, money market funds, bonds, structured products with guaranteed capital at maturity, etc.)
• Acceptable market risks (interest rates, currency, etc.), liquidity risks (e.g., cash mobilization within less than 3 months), and counterparty risks
• Possible permission to invest in riskier instruments, within a limited amount
• Roles and responsibilities associated with investments
• The exception process, in case the general framework cannot be applied
• The policy review and revision process

It is common for publicly traded companies to focus predominantly on investments eligible for classification as cash equivalents. In that case, investments are done with the primary objective to preserve capital while keeping high liquidity. Private companies generally have a more flexible investment framework.