Quantitative Study On Cash Management For Business Bank

The global financial crunch broke out in the USA in the year 2008 has draw people’s attention to the liquidity cash management in banking industry. As the most basic resource for liquidity and the "blood" for the life of a bank, cash is very important for running a bank. The chief purpose for this dissertation is to examine the usefulness of the Miller-Orr model in the cash management of a certain Chinese bank. Furthermore, as most Chinese banks apply no cash management model, this action research has provided a good example of applying a model to control cash holding level.Cash management theories have great developed since the early 1920s and with the same step is the development of quantitative methods. There are three main quantitative approaches in liquidity management worldwide. Firstly, stationary maturity approach, which cares the liquidity position at a static time. Secondly, dynamic maturity approach, which use project to formula the cash position during a period of time. Finally, the ratio analysis approach is popular. This approach calculates a rate, which is easy for people from both inside and outside the firms to compare and control. Although liquidity is very important for banks, compared with foreign banks, Chinese banks lack effective methods in cash management. The situation in the cash management of Chinese banks is really poor. When it comes to the practice of banks, the majority of banks lack cash management method in their everyday operation. When it comes to the theories of the banking liquidity management, there is rarely any study which put cash methods into banking industry.Miller-Orr model is provided by Miller, M. & D. Orr in 1966. From this article, the optimum cash holding level is the function of the following three variables, variance of cash holding level, cost per transfer and interest rate of portfolio. In order to find the optimum figure, all these figures are collected from a Chinese bank. There are many cases on the application of Miller-Orr model. However, there is still only a few works have been undertaken in the fields of financial institutions like, including the reserve bank of New Zealand, who applied the model to set the interest goal (Guthrie and Wright,2001). Therefore, there is a gap in applying the Miller-Orr model in the banking industry, and this is the area that my dissertation is looking for.After the study, the following three conclusions have been drawn. Firstly, Miller-Orr model works properly in this sample bank. Data are handled using some quantitative methods, for example, the linear regression by EVIEWS and the statistic methods by Excel. As many Chinese banks are very poor in liquidity management, this dissertation also provides a good example for Chinese banks in applying models to control their cash holding level. Secondly, key figures are provided to the sample bank for the purpose of cash control, for example the optimum cash level of the banks. Finally, some advices are provided in the field of banking regulations in order to improve the liquidity of the bank from the outside factors.