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.

Question

Quizplus · Accepted Answer

Easier access to borrowed funds typically means a firm can rely less on precautionary balances, as it can more readily obtain financing when needed, reducing the need to hold large cash reserves for protection against sudden financial needs or interest rate increases.

The Easier a Firm's Access to Borrowed Funds the Higher