Question

Case study

Twins Laila aru' Lily are excited to be starting collego next year. Laila is leaving horne
behind and heading to college in Florida while her sister Lily in going to live at home and
attend a local university. up until now, they have always use' cash or gift cards received
for holidays or birthdays to pay for their expenses. Any savings they had was in their
piggy banks in their rooms. Now that college is almost here. they realize that cash may
be the best option.

1. Why is cash not always a good Option?

2. What should Laila consider when picking a bank? What about Lily? Do they have  different needs?

Answer 1

1. Cash not always a good option:

Cash is not always a good option because accumulating too much cash does not help, there is a time value of money which is associated with it. A person who invest those ideal cash in the different types of investment available always have a better chance to utilize the value of cash.

Let's take an example. There is a Person A and Person B both having cash of $60,000. Their objective is to purchase a property which is of $80,000 in the next one year. Person A only accumulates cash and does not invest it whereas Person B decides to take another property of $50,000 right now and rented those properties. At one year time Person A does not have the sufficient funds to purchase the property whereas Person B accumulates sufficient cash from the rent of current property to purchase the property which was the objective.

There is also high risk in keeping a lot of cash because of unseen circumstances that might happen (such as robbery, theft etc)

2. Laila should consider the following factors while choosing a bank

• She can withdraw cash from the bank anytime she want
• The bank should have sufficient branches so that it is reachable
• The bank should provide online banking facilities so that one can transfer money anytime they want
• The bank should have a good customer support service
• The bank should also provide different investment opportunities like investing in debts, shares etc.

The condition of Lily is different from Laila as:

• Lily can use the savings from Piggy bank because she is at home only
• the expenses for Lily would be less as compared to Laila
• she can always go back to their parents in case of urgent requirements of money