Which of the following is not a reason for a firm to hold cash balances?
A)To cover routine payments and collections.
B)To earn high rates of interest.
C)To meet compensating balance requirements of banks.
D)To provide a safety stock in the event of unforeseen fluctuations into cash flows.
E)To take advantage of bargain purchases that might arise.

Question

Quizplus · Accepted Answer

Holding large cash balances does not necessarily result in earning high rates of interest. In fact, the opportunity cost of holding cash when interest rates are high can be significant. The other reasons listed are valid justifications for holding cash balances.

Which of the Following Is Not a Reason for a Firm