Which of the Following Statements Best Describes Cash Balances

question 29

Multiple Choice

Which of the following statements best describes cash balances?

• A) Most firms' cash balances consist of transactions and compensating and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them.
• B) 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.
• C) For some firms, holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash.
• D) All companies hold the same percentage of funds for transaction balances.

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