top of page
Short-Term Management of Finance

Accounting (Year 12) - Financial Institutions

Christian Bien

What is Short-Term Management of Finance Options?

Short-term often means a maturity within 1 year. That means that an investment can be converted into cash within 1 year. We have chosen to interpret the term 'management of finance' as relating to the short term investment options available to businesses.

Businesses want to invest in short-term options to allow for a modest return on their investment and also ensure the liquidity of their investments. In other words, short-term finance options allow cash to be more productive and earn a return while still being relatively accessible by the business. Short-term investment options mature quickly and can be used to pay off unexpected debts.

Cash Management Trusts

Cash management trusts are where a business hands over money to a trustee who pools the money with other investors and uses it to invest in the short-term money market. Trustees make investment decisions on behalf of investors that will maximise their returns.


  • Convenient: Managers can spend less time deciding what investments to buy and spend more time growing the business

  • Access to Expertise: Trustees are often experienced and knowledgeable in their field of investing in the short term money market


  • Fees: Businesses will receive a return minus the trustee's fees for their services

Term Deposits

Overview of Term Deposits by Moneysmart (Australia)

Term deposits are where the money is invested in a financial institution for a fixed period of time with the promise of a fixed rate of interest paid annually or upon maturity.


  • No maintenance: Once the money is invested in a term deposit it is locked for a fixed period of time. No action is necessary by the business.

  • Certainty: term deposits offer guaranteed returns on investments. Australian Government guarantees up to $250,000 per account.

  • No upfront fees


  • Limited liquidity: Term deposit must mature before being able to be converted into cash, otherwise fees apply for early maturity (in other words, you pay a fee if you want to access your money earlier)

  • Rates of return only increase with the length of maturity: short-term rates are often pretty low, for example, the above image gives a return of 0.7% pa for 90 days while a 2-year deposit earns 1.4%

Short Term Money Market

The short-term money market is a market that trades short-term liquid assets such as commercial bills, bank bills and promissory notes.

  • Commercial Bills: A short-term I.O.U issued by a business used to raise capital.

  • Promissory Note: A promise to pay back a written debt in a given period of time, with interest.


  • Certainty: Commerical bills, bank bills and promissory notes often state the time they are required to be paid back and the sum that is due.

  • Highly liquid: Items on the short-term money market can be traded and converted into cash easily


  • Fees associated with trading items on the money market

  • Often requires some knowledge about the short-term money market and its investments

  • Commercial bills and promissory notes tend to be riskier than term deposits or government bonds

Government Bonds

Overview of Government Bonds (Note this is produced from a US context)

Government bonds are debt instruments, often long-term in nature, issued by the Australian government with the promise of fixed periodic interest repayments and repayment of debt by maturity.


  • Low Risk: Very little chance of the Australian government default in its debt - Liquid - can be traded on the ASX and easily convertible to cash

  • Certainty: Fixed interest repayments


  • Interest Rate Risk: When interest rates rise, the value of bond decreases as the interest rate on the government bond is fixed and other alternative investments become more desirable

  • Liquidity Risk: Government bonds are often exchanged on public exchanges which means the price of government bonds tends to fluctuate - although it is often not as volatile as share price movements of public companies. Check the volatility of Government bonds yourself by looking up the ASX code 'VGB' which is an exchange-traded fund consisting of Australian government bonds.

bottom of page