If the volatility of the daily cash flows decrease,a firm will:

Question

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If the volatility of daily cash flows decreases, it means that the inflows and outflows of cash are more predictable and stable. This would give the firm greater certainty over their future cash position and enable them to make more accurate cash management decisions. As a result, the firm may decide to hold a lower cash balance as they are less likely to need to draw on reserves to cover unexpected expenses. Therefore, a decrease in volatility would likely result in a decrease in the cash balance.

If the Volatility of the Daily Cash Flows Decrease,a Firm