The cost of borrowing and the cost of selling securities affect the target cash balance of a ﬁrm.

Question

Quizplus · Accepted Answer

The cost of borrowing and the cost of selling securities are both factors that affect a firm's cash balance. If the cost of borrowing is high, the firm may want to keep a higher cash balance to avoid having to rely on borrowing. Similarly, if the cost of selling securities is high, the firm may want to keep a higher cash balance to avoid having to sell securities to raise cash.

The Cost of Borrowing and the Cost of Selling Securities