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Cash & Liquidity Management
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Is the Future of Money Market Funds Hanging in the Balance?

by David Rothon, Senior Investment Strategist, Northern Trust.

Whilst recent opinion has been improving, the financial and economic backdrop remains fragile and uncertain. A complete meltdown of the financial system has seemingly been averted but the recessionary fire continues to burn brightly.

Across the globe, corporate profits have, for the most part, been disappointing and the negative impact of rising unemployment, a reduction in both capital spending and in inventories is hampering economic recovery. Corporates are facing significant challenges in working through this exceptional period. Treasury teams in particular continue to navigate through choppy waters, as counterparty lists have shrunk through rating downgrades, concerns continue about banks and other financial institutions, liquidity headaches remain, and there are fears over what assets are contained in their money market funds (MMFs).

Managing liquidity

Governments and central banks have alleviated some of these concerns by recapitalising institutions and injecting liquidity into the system to unfreeze markets and improve the price and availability of credit. Nevertheless, dislocations are widespread across capital markets. New policies, such as quantitative easing, are making the task of managing corporate cash increasingly more complex.

New policies, such as quantitive easing, are making the task of managing corporate cash increasingly more complex.