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What factors are considered for final selection of avenue for investing cash balance?
As the company cannot afford to keep the excess cash balance idle as it involves the opportunity cost. Thus the objective of cash management requires the company to think about the possibility of investing the excess cash balance on short term basis. Various avenues are available to the company to invest the excess cash balance on short term basis. However for the final selection of the avenue for investing the cash balance may depend on various factors:
1. Return: Higher the return, better the investment.
2. Risk : High return investments involve high risk.
3. Liquidity : Liquidity associated with the investment opportunity becomes an important criteria.
4. Legal Requirements: Sometimes organizations need to fulfill some legal formalities before considering any investment portfolio.
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