Bank Theory

Working Capital Management | Bank Theory Working Capital Management Working Capital refers to the capital required for the day-to-day operations of a business. It is defined as the difference between current assets and current liabilities. Effective management of working capital ensures liquidity, solvency, and profitability. Working Capital Cycle (WCC) The Working Capital Cycle represents the time it takes for a business to convert its net current assets into cash. It is the sum of the inventory holding period and receivables collection period minus the payables payment period. Example: A firm holds inventory for 60 days, receives payment from customers in 30 days, and pays suppliers in 45 days. WCC = 60 + 30 - 45 = 45 days. Cash and Marketable Securities Firms hold cash for transactional, precautionary, and speculative purposes. Marketable securities are short-term instruments that are easily convertible to cash, like T-bills and CPs. ...

Money Markets and Capital Markets Money markets and capital markets are integral components of the financial system. Money markets focus on short-term borrowing and lending (typically up to one year), while capital markets deal with long-term investments and financing. Call Money, Notice Money, and Term Money Call Money: Loans repayable on demand, typically with a maturity of 1 day. Notice Money: Loans with a maturity of 2-14 days. Term Money: Money lent for a fixed term of over 14 days. Mathematical Example: Suppose a bank lends ₹5,000,000 as call money at an interest rate of 3% p.a. for 2 days. Interest = Principal × Rate × Time = ₹5,000,000 × (0.03/365) × 2 = ₹821.92 Treasury Bills (T-Bills) Treasury Bills are short-term debt instruments issued by the government, typically for 91, 182, or 364 days, sold at a discount and redeemed at face...