Which One of the Following Statements Is Correct Concerning a Motive

question 31

Multiple Choice

Which one of the following statements is correct concerning a motive for maintaining liquidity?

• A) Firms should maintain compensating balances just in case they encounter an emergency situation.
• B) Firms need to hold cash as a buffer between inflowing and outflowing transactions.
• C) International firms have a transactional motive to hold cash in case favorable exchange rates become available.
• D) Firms need to hold cash for precautionary motives especially since money market accounts are not very liquid.
• E) The increasing use of electronic funds transfers is increasing the transactional motive to hold cash.

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Definitions:

Net Worth Statement

A financial document summarizing the assets and liabilities of an individual or entity, showing the net value.

Operating Objective

A specific, measurable goal that an organization seeks to achieve in its day-to-day operations to meet its strategic aims.

Strategic Management

The ongoing planning, monitoring, analysis, and assessment of all necessities an organization needs to meet its goals and objectives, with a focus on long-term strategic direction.

Strategy Formulation

The process of identifying strategic goals, generating and evaluating strategic options, and selecting the appropriate strategies for implementation.