Which of the following represents a serious concern for those firms employing the Baumol model of cash management?

Question

Quizplus · Accepted Answer

The Baumol model assumes a constant rate of cash disbursements, and any volatility in this rate can lead to a serious concern for firms employing this model. This is because the model is based on the assumption of a fixed cost of transferring cash between the cash balance and the investment account, and any unexpected changes in cash disbursements can lead to higher transfer costs and lower overall returns. Market illiquidity when selling bills, high interest-rate risk, and low rates of return on treasury bills are all factors that affect the returns earned from cash management, but they are not specific concerns related to the Baumol model.

Which of the Following Represents a Serious Concern for Those