What goes into a corporate cash-investment policy for surplus liquidity, and what's the ordering of objectives?
A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The classic ordering is security, then liquidity, then yield — in that priority. Corporate cash is working capital, not a profit center, so capital preservation comes first, ready access second, return last. A policy operationalizes this with eligible instruments (bank deposits, government bills, high-grade money-market funds, sometimes high-grade commercial paper), minimum credit-rating thresholds, maximum tenors and laddering to match forecast needs, and concentration limits per counterparty/issuer to avoid single-name risk. It also sets who can transact and approval limits. The discipline matters because reaching for yield (the 2008 'enhanced' money funds, or over-concentrating in one bank) is how treasuries have lost principal. So you tier cash into operating, reserve, and strategic buckets and invest each to its horizon and risk tolerance.
WHAT INTERVIEWERS LISTEN FOR
- ✓Priority: security > liquidity > yield
- ✓Eligible instruments, rating floors, tenor and concentration limits
- ✓Ladder maturities to forecast needs
- ✓Tier cash into operating/reserve/strategic buckets
COMMON MISTAKES
- ✗Prioritizing yield over preservation
- ✗No concentration/counterparty limits
- ✗Investing operating cash in illiquid/long instruments
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