Which one of the following best represents the transaction motive for holding cash?
A)Buying extra inventory in response to an unexpected sale offered by a supplier
B)Distributing the weekly paychecks
C)Increasing the minimum cash balance for the firm's main bank account
D)Unexpectedly purchasing a competitor's firm
E)Holding cash in anticipation that the firm may need to close for a few days if floodwaters keep rising

Question

Quizplus · Accepted Answer

Distributing paychecks is a regular and predictable cash outflow that requires a cash balance to cover the payments. This represents the transaction motive for holding cash. Choices A, C, and D relate to investment or precautionary motives, while choice E relates to a precautionary motive for holding cash.

Which One of the Following Best Represents the Transaction Motive