Which of the Following Statements Is Most Correct

question 18

Multiple Choice

Which of the following statements is most correct?

• A) A good cash management system would minimize disbursement float and maximize collections float.
• B) If a firm begins to use a well-designed lockbox system, this will reduce its customers' net float.
• C) In the early 1980's, the prime interest rate hit a high of 21 percent. In 1995 the prime rate was considerably lower. That sharp interest rate decline has increased firms' concerns about the efficiency of their cash management programs.
• D) If a firm can get its customers to permit it to pay by wire transfers rather than having to write checks, this will increase its net float and thus reduce its required cash balances.
• E) A firm which has such an efficient cash management system that it has positive net float can have a negative checkbook balance at most times and still not have its checks bounce.

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Definitions:

Money Supply

At any given time, the total economic assets available in an economy, which consist of cash, coins, and the balances in checking and savings accounts.

Long Run

A period of time sufficient for all inputs in the production process to be adjusted, including both fixed and variable resources.

Short-Run Equilibrium

A state in which market supply equals market demand at a particular price level, but where all factors of production and costs are not fully adjustable.

Long-Run Equilibrium

A state in which economic forces such as supply and demand are balanced and in the absence of external influences the values of economic variables will not change.