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Study the following case/situation and express your opinion. Mr. X is the CFO ( Chief Financial Officer ) of PQR Co. Ltd. which is a reputed company in the field of construction business. Often Mr. X - Secretarial Practice

Short Note

Study the following case/situation and express your opinion.
Mr. X is the CFO ( Chief Financial Officer ) of PQR Co. Ltd. which is a reputed company in the field of construction business. Often Mr. X has to decide on investing surplus funds of the company for short durations. And at times, he also has to decide the sources from where he can raise funds for short durations.

  1. Assume on behalf of the company Mr. X has Rs. 5 lakhs and wants to invest for a short period. Should he buy Equity shares or Certificate of Deposit?
  2. The company has surplus funds and wants to invest it. However, he needs the money back in 4 months, so should he invest in Treasury Bills or Government Securities?
  3. Can the company issue Certificate of Deposit?
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Solution

  1. Mr. X wants to invest for a short period and money is in multiple of 1 lakh, so he should invest in a certificate of deposit. This is because the CD is issued for a minimum value of  1 lakh or in multiples of  1 lakh and provides maturity in minimum 7 days to maximum 1 year.
  2. Mr. X should invest surplus funds in government securities as these securities are safe investments. Alternatively, he can also invest in Treasury Bills having a maturity period of 91 days. However, the funds will not remain invested for the entire duration of 4 months in this case. Hence, investing in government securities seems more appropriate.
  3. No, PQR Co. Ltd. Cannot issue a Certificate of Deposit (CD). CDs are unsecured negotiable promissory notes, usually issued by commercial banks and financial institutions, but this company is a construction company.
  Is there an error in this question or solution?
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APPEARS IN

Balbharati Secretarial Practice 12th Standard HSC Maharashtra State Board
Chapter 11 Financial Market
Exercise | Q 3.2 | Page 169
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