A conversation between two students on their way to Business Management class

Narrator
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.