Determining the appropriate target cash balance involves assessing the trade-off between:

Question

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The appropriate target cash balance needs to balance the benefit of having enough liquidity to meet transaction needs with the cost of holding excess cash that could otherwise be put to more productive uses. While income and diversification and balance sheet strength are important factors in financial management, they are not directly related to determining the appropriate target cash balance.

Determining the Appropriate Target Cash Balance Involves Assessing the Trade-Off