This chapter deals with cash management, which comprises three parts. First, the cash flowing in and out through a firm's collection and disbursement systems create unusable transit balances and these need to optimized through efficient management of the inward and outward systems. Second, a firm needs to maintain an appropriate level of cash balance to ensure its liquidity, but cash is a zero-return asset and one should hold only just the needed level. Third, the financial manager needs to find the right assets to invest part of the firm's idle cash balances of the firm. The object of efficient cash management is to ensure the solvency of the enterprise and to add to the value of the firm. Financial managers trade-off the interest on invested money in exchange for liquidity and attempt to ensure the proper balance between too little and too much cash or liquidity.

The chapter also surveys the short-term investments available, which can be used to park surplus cash balances and earn some return. The marketplace in which these instruments are traded is known as the money market. The method of calculating yields on most money-market investments is different from that on other types of investment, because they are sold on a discount from their face value. The difference between the purchase price and the discount is the interest earned.