Case study
Vodafone
You can get some idea of the importance of money markets to companies from Table 1.2 showing investment amounts taken from Vodafone's annual reports. Vodafone keeps a large amount of cash and cash equivalents in reserve: over £7 billion in 2013.
Cash equivalents are not quite cash but they are so liquid that they are near-cash (near-money or quasi-money). They are financial assets that can easily be sold to raise cash, or which are due to pay back their capital value in a few days, with low risk regarding the amount of cash they will release. These are mostly money market instruments.Vodafone keeps such a large quantity of money available in this highly liquid and low-risk form so that it can supply its various business units with the cash they need for day-to-day operations or for regular investment projects. Also, it is useful to have readily accessible money to be able to take advantage of investment opportunities as they fleetingly appear (e.g. the purchase of a company). Alternatively, the cash and near-cash is there because the company has recently had a major inflow - perhaps it sold a division or has had bumper profits - and it has not yet allocated the money to its final uses, such as paying billions in dividends to shareholders, launching a new product, buying another company or simply paying a tax bill. In the meantime that money might as well be earning Vodafone some interest, so the money that is surplus to the immediate needs of Vodafone's various business units is gathered together and temporarily lent to other organisations in the money markets.
Vodafone also uses the money markets to borrow money. For example, at 2013 year-end it had more than £4 billion owing to purchasers of its commercial paper. This was borrowed (and had to be repaid) in sterling, US dollars, euros and Japanese yen. But this is not the half of it.
Vodafone had arrangements with banks to borrow via commercial paper as much as US$15 billion and £5 billion at any one time. The banks committing to this deal will generally make arrangements for other investors to supply this finance if Vodafone wishes to borrow this way to meet short-term liquidity requirements at any point in the year.Table 1.2 Money market holdings and cash taken from Vodafone's annual reports, 2008-2013
| Cash and cash equivalents | 2013 £m | 2012 £m | 2011 £m | 2010 £m | 2009 £m | 2008 £m |
| Cash at bank and in hand | 1,396 | 2,762 | 896 | 745 | 811 | 451 |
| Money market funds | 3,494 | 3,190 | 5,015 | 3,678 | 3,419 | 477 |
| Repurchase agreements | 2,550 | 600 | - | - | 648 | 478 |
| Commercial paper | - | - | - | - | - | 293 |
| Short term securitised investments | 183 | 586 | - | - | - | - |
| Other | - | - | 341 | - | - | - |
| Cash and cash equivalents as presented in the balance sheet (statement of financial position) | 7,623 | 7,138 | 6,252 | 4,423 | 4,878 | 1,699 |