Stuart Altmann on fri 16 jul 99
If a fair requires that you deposit the entry fee when you apply, and
returns it to you only months later with your rejection notice, they are
"riding the float." That is, they are making a profit by investing your
money while they hold it. That's what your bank does. It is what American
Express does when you buy their travelers cheques, and why they urge you to
hang onto your unused cheques until your next trip.
Can a fair make any appreciable amount of money that way? Here's a simple
example. Suppose a thousand people apply to a fair and send in their fee
of $200 six months (on average) before the day of notification
(accepted/rejected). The fair management is holding $200,000 for six
months. In that time, they can easily earn 2% on it (actually more, in
today's financial market), which will earn them $4000. Some fairs have
fees of a thousand dollars or more. Now we are talking BIG float!
Stuart Altmann
email: salt@princeton.edu office 'phone: 609/258-4520
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