CASH MANAGEMENTBY : ANJANA RAI

ROLL NO :260137

DEFINITION

CASH : Cash is the ready currency to which all liquid assets can be reduced.

NEAR CASH : Implies marketable securities viewed the same way as cash because of their high liquidity.

TRANSACTION MOTIVE : Is a motive for holding cash / near cash to meet routine cash requirements to finance transaction in the normal cause of business.

PRECAUTIONARY MOTIVE : It is a motive for holding cash / near cash as a cushion to meet unexpected contingencies / demand for cash.

SPECULATIVE MOTIVE : Is a motive for holding cash / near cash to quickly take advantage of opportunities typically outside the normal course of business.

COMPENSATION MOTIVE : Is a motive for holding cash / near cash to compensate banks for providing certain services or loans.

OBJECTIVES OF CASH MANAGEMENT

To meet the cash disbursement needs. 1. it prevents insolvency or bankruptcy arising out of

the inability of a firm to meet its obligations

2.the relashionship with the bank is not strained

3.it helps in fostering good relations with trade creditors & suppliers of raw materials, as prompt payment may help their own cash management

4. a cash discount can be availed of if payment is made within the due date

5.it leads to a strong credit rating which enables the firm to purchase goods on favourable terms and to maintain its line of credit with banks and other sources of credit.

To minimize funds committed to cash balances: it minimises cash balances. It aims at having optimum level of cash balance.

CASH MANAGEMENT AT ATMS REUIREMENTS : Electronic fund transfer

system. Elecronic clearing

service.

ATM

An automated teller machine (ATM) is a computerized telecommunications device that provides the customers of a financial institution with access to financial transactions in a public space without the need for a human clerk or bank teller.

Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances as well as purchasing mobile cell phone prepaid credit.

NECESSITY OF CASH MANAGEMENT AT ATM

There is significant increase in ATM usage in recent years, financial institutions must address management of cash funds in their ATM networks in order to capture greater efficiencies in revenue and stay ahead of an increasingly competitive market.

In order to stay at the forefront, sourcing an optimal cash management solution that can predict, plan and forecast usage to facilitate efficient cash consumption and replenishment is essential.

Through cash management optimisation, ATM network operators can effectively balance between the amount of idle cash in ATMs and number of cash replenishments.

Some banks typically maintain as much as 40 % more cash at their ATMs than what's needed, even though many experts consider cash excess of 15 % to 20 % to be sufficient.

Cash-related costs represent about 35–60 % of the overall costs of running an ATM. Through currencymanagement optimization, banks can avoid falling into the trap of maintaining too much cash and begin to profit by mobilizing idle cash.

Therefore, it is very important to develop advanced algorithms to accurately predict currency demand for ATM.

Based on cash demand forecasting an intelligent cash management system can then provide the bank the opportunities to lower its operational expenses and improve the return on its cash assets.

The ATM networks are expanding strongly in last time and the development of intelligent systems for monitoring and optimization of ATM networks becomes very relevant.

Existing approaches for ATM cash demand forecasting and management

The basic element in development of efficient ATM cash management system is a cash demand

forecasting model for every ATM. Generally this forecasting model is created based

on historical cash demand data. The historical cash demand for every ATM varies

with time and is often overlaid with non stationary behavior of users and with additional factors, such as paydays, holidays, and seasonal demand in a specific area.

Cash drawings are subject to trends and generally follow weekly, monthly and annualcycles. For example, people tend to draw relatively large sums of cash at the beginning of each month.

Before Diwali, drawing rates soar, whereas in August, during the summer holidays, rates tend to drop considerably. ATMs that are located in shopping centres, for example, are most heaped on Fridays and Saturdays.

The development of the forecasting model is complicated procedure, because it must consider the changing behaviour of users and various input variables.

Based on the cash demand forecasting model the optimization procedure determines the optimum cash amount for each ATM by calculating the transport and money upload costs against interest rates.

Cash management system has to guarantee the availability of cash in the ATMs network, should estimate optimal amount of stocked money plus efficiently manage and control day-to-day cash handling, transportation with reducing of currency transportation and servicing costs.

The system should be flexible enough to allow the bank to re-forecast future demand, perform WHAT – IF analyses, and optimize the network as the cash distribution environment evolves.

Most known cash management systems for ATM network are iCom (Carreker Corporation), MorphisCM (Morphis, Inc), OptiCa$h (Transoft International),Pro Cash Analyser (Wincor Nixdorf), (Simutis et al., 2007).

Cash supply optimization procedure

The proposed ANN-based algorithm predicts the demand for currency at each ATM on an individual basis. Then, by applying an optimization algorithm, the cash position for each ATM is determined. The cash supply optimization procedure contains the following steps:

• The amount of cash positions on every ATM is monitored daily ;

• Based on the trained ANN a cash demand for n-subsequent day for every ATM is predicted ;

If the cash position in ATM for next day is smaller as required, the optimization algorithm for cash upload is activated;

• Using an optimization algorithm, the optimal cash upload for ATM is estimated. The algorithm searches for minimal ATM’s maintenance cost function. This cost function consists of cash costs (annual interest rate), cash uploading costs and constant ATM-service costs. We used simulated annealing optimization method [6] to estimate an amount of cash upload for ATMs, which minimi-zes the ATM’s maintenance cost function.

This optimization procedure that determines the lowest cost of cash distribution – based on accurate supply and demand forecasting – provides the oppor-tunity for a bank to lower its operational expenses and improve the return on its cash assets.

Cash Planning Advantages

Reduces cost of operating an ATM network    

Equips bank or ATM network operator personnel with a tool to avert idle cash in ATMs and therefore, improves overall network profitability    

Allows to plan and optimise the work of cash carriers and cash vaults as the system recommends how much cash to take, location to visit and at what time

Improves customer satisfaction