GT Motors regularly issues short-term debt to finance its daily operations.Suddenly,the credit markets froze and no funds were available for borrowing.Fortunately,the firm had some cash reserves saved that it was able to use to fund its operations until additional credit was available.The need to retain cash for situations such as this is referred to as which one of the following motives for holding cash?

Question

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The need to retain cash for situations such as sudden unavailability of credit is the precautionary motive for holding cash. This allows firms to have a buffer of cash reserves to address unexpected and urgent needs. Speculative motives revolve around potential opportunities for profitable investments, whereas float motives deal with temporarily holding funds for processing transactions. Compensating motives refer to the benefits of paying cash to obtain discounts or maintain good relationships with suppliers. Transaction motives involve holding cash to facilitate routine business transactions.

GT Motors Regularly Issues Short-Term Debt to Finance Its Daily