Conversation 46

Listen to a conversation between two students on their way to Business Management class.

Pamela: Eric! Eric! Wait up a minute! Hey!

Eric: Huh? What? Oh– hi, Pam. What’s up? You OK?

P (out of breath): Yeah…whoosh!…yeah…I’ve just been trying to catch up to you for the last block. Boy, you walk fast!

E: Sorry. I’m running late, that’s all. Can you walk and talk at the same time? What’s on your mind?

P: (still breathing heavily): Woosh… Ah…mmm…Have you got any money? Have you got any extra money?

E (laughs): Huh? Sure. How much do you need? Ten, twenty bucks? What’d you do, go over budget again this month?

P: No, no! I’m not out of pocket, no. Have you got any real money? I’ve been working on my practicum for Financial Management, you know, and–

E: Oh, that! Yeah. Mm– you picked what?– cash management, didn’t you? How’s that going?

P: Oh, it’s going great, Eric, real great. That’s what I want to tell you about. I’m supposed to work with the 200-dollar limit that Dr Geitner set us, and I think I can do pretty good for CBA Company.

E: CBA Company?

P: Yeah, I thought that was more interesting than “ABC Company”.

E: Oh. Real catchy, yep. Very imaginative, Pamela.

P: Thanks! Anyway, the 200 dollars I’m using as CBA’s minimum cash-on-hand, and I want to start investing it in overnights.

E: Overnights? Those are short-term deposits, right?

P: Right. You make the deposit at 6 pm and then it matures at 6 am the next morning– it’s a half-day term deposit. It doesn’t earn much interest, of course, but the security and liquidity are 100 percent, and the principal and interest are fully guaranteed. And you make a little money on your money that’s not doing anything at night anyway.

E: “Little” is the operative word there, isn’t it? What do you make on 200 dollars then, Pam?

P: About zero point one oh percent. Twenty cents.

E: Wow! You’ll be rich as Croesus!

P: No– now wait a minute, Eric– listen now. This is just a practicum. Real businesses do this– big corporations do this– and they’ve got maybe three or four million dollars in cash lying around at the end of every workday. Try four million dollars at zero point one percent…

E: …Which gives us, uh…how much then?

P: Four thousand dollars.

E: Four grand?! That’s more like it. Overnights are beginning to sound all right. I wish I had a million to invest.

P: Me too. And y’see, that’s where my problem comes. This is a practicum, not theoretical research, so I’ve got to actually invest that 200 dollars. The catch is that overnights, they need a minimum principle of two thousand dollars. They won’t accept my two hundred.

E: Oh. So?

P: So…I was thinking. I’ve got a little over fifteen hundred in the bank– that’s what the two hundred is coming out of. So, if I could come up with another 500 dollars somewhere…so that I’d have the minimum… And that’s when I thought of you!

E: Huh?! Oh– I get it. You want me to lend you the 500 dollars. I see.

P: Yes. Could you, Eric?

E: Overnight? For one day?

P: Well…um..no. I’d need it for about ten days. I’m going to have to roll it over through several overnights, so I can collect enough data on the earnings and everything, but–

E: It’s really risk-free, Pam?

P: Absolutely, Eric, absolutely! Is City Bank going to go bankrupt overnight? Or in ten days? I doubt it.

E: Well then…what about the interest?

P: Huh? What do you mean?

E: The interest we earn. On 2000 dollars, that should be about…two bucks, right? We split that, right?

P: Well actually, since I’ll be rolling over the principal about ten times, we should make about 20 dollars, and…and– we’ll share the profits, sure. Your 500 dollars and my fifteen hundred…that would give you, lessee…um, 25 percent of 20 dollars is five dollars interest on your 500-dollar loan. Not bad, huh?

E (laughs): I guess I won’t get rich, but– OK. It’s a deal. When do you need the money?

P: Well, as soon as you can, I guess.

E: Let’s see now…Can I write you a check?

P: Sure.

E: Then I’ll write you a check in class. Now let’s go or we’ll be late.

P: Great! Thanks, Eric, thanks a lot. You’re a real friend.