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Chapter 4 — Cash and Cash Equivalents

4.3 Centralized Cash Management Arrangements (“Cash Pools”)

4.3 Centralized Cash Management Arrangements (“Cash Pools”)

A parent company and its subsidiaries may have centralized cash management arrangements in which excess cash is invested in a cash pool. Subsidiary cash requirements are met through withdrawals or borrowings from the pool. The pool is invested in assets (e.g., deposits at banks) that are in the parent company’s name. Under this type of arrangement, the parent company and its subsidiaries have sweep arrangements with their respective banks in which cash is transferred between the parent’s and subsidiaries’ bank accounts daily. This arrangement reduces lending costs and yields higher rates of return on investments (by allowing an entity to invest larger “blocks” of cash).