Point Counter-Point
Should Firms Invest in Money Market Securities
Point –No. Firms are supposed to use money in a manner that generates an adequatereturn to shareholders. Money market securities provide a return that is less than thatrequired by shareholders.
Thus, firms should not be using shareholder funds to invest inmoney market securities. If firms need liquidity, they can rely on the money markets forshort-term borrowing.
Counter-Point– Yes.Firms need money markets for liquidity. If they do not hold any moneymarket securities, they will frequently be forced to borrow to cover unanticipated cashneeds. The lenders may charge higher risk premiums when lending so frequently to thesefirms.
Who Is Correct?
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