At the extreme, a firm that adheres to the conservative approach to finance current assets will finance all of its seasonal needs with long-term financing alternatives, thereby eliminating the need to use short-term financing. Such a firm will have extra permanent funds during off-peak periods, allowing it to store liquidity in the form of short-term investments during the off-season.

Question

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A conservative financing approach involves using long-term financing to cover both permanent and seasonal needs, which indeed allows a firm to have extra funds during off-peak periods for short-term investments, reducing the reliance on short-term financing.

At the Extreme, a Firm That Adheres to the Conservative