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The Cash Balances of Most Firms Consist of Transactions, Compensating

question 26

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The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances.We can produce a total desired cash balance by calculating the amount needed for each purpose and then summing them together.


Definitions:

Monetary Control Act

A United States federal law enacted in 1980 aimed at improving the Federal Reserve's control over the monetary supply and interest rates.

Thrift Institutions

Financial organizations focused on savings and mortgage lending, including savings and loan associations, credit unions, and savings banks.

Commercial Banks

Financial institutions that offer a wide range of services including deposit accounts, loans, and other financial products to businesses and consumers.

Contractionary Monetary Policy

To fight inflation, the Federal Reserve decreases the money supply.

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