Which of the following statements is most correct? Answer The cash balances of m

Question

Which of the following statements is most correct?


Answer

The cash balances of most firms consist of transaction balances, compensating balances, and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them together.

The easier a firm’s access to borrowed funds, the higher its precautionary balances will be in order to protect against sudden increases in interest rates.

For some firms holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash.

All companies hold the same amount of funds for a transaction balance.

None of the statements above is correct.

Explanation / Answer

  "The cash balances of most firms consist of transaction balances, compensating balances, and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them together" is the corerct answer. why ...."wrong" remain.. 2.though the keeping of higher cash balnce gives safeguard from fluctuation of Interest rates ,its not fair to the company3.since marketale securities gives us immidiate money ,it may not use ful at some time as like cash. for example to by a new thing its not possible to get againist marketable securires,cash payments might be not possible with same... 4.forecasting and cash managemnt is necessary for every sucessfull business..

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