Assume a Firm Can Either Hold Cash Paying No Interest

question 80

Multiple Choice

Assume a firm can either hold cash paying no interest or invest in marketable securities.Which one of the following might induce the manager to hold higher cash balances today?

• A) The cost of borrowing is high relative to interest rates on marketable securities.
• B) Future cash flows are relatively predictable.
• C) The cost of cash balances is relatively high.
• D) Bank interest rates are expected to decrease.

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Definitions:

Securities Act

A U.S. law enacted in 1933 that regulates the offer and sale of securities to protect investors from fraud.

Investment Dealer

A business entity or individual that engages in the buying and selling of securities for its clients or its own account.

Securities Commission

A regulatory body charged with overseeing the securities markets to protect investors and maintain fair, efficient, and transparent systems.

Insider Trading

The illegal practice of trading a public company's stock or other securities based on material, non-public information about the company.