A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows.

Question

Quizplus · Accepted Answer

A precautionary balance is held by a firm as a safety net against unexpected changes in cash flows. This reserve is meant to be used in case of emergency, allowing the firm to meet any sudden financial needs without having to resort to borrowing or other costly measures. A compensating balance is a type of account that a bank may require a borrower to maintain to compensate for the bank's lending risk. A speculative balance is cash held by a firm for investment purposes. A lockbox is a type of service provided by banks to businesses for the processing of payments. A transactions balance is simply the total amount of cash a firm has on hand at any given time, including both incoming and outgoing cash flows.

A ______ Balance Is Cash That a Firm Holds in Reserve