The most important reasons firms hold cash balances are the transaction and precautionary motives.

Question

Quizplus · Accepted Answer

The transaction motive refers to the need for firms to hold cash to meet daily operational expenses, while the precautionary motive refers to holding cash as a buffer against unexpected events such as economic downturns, natural disasters or unforeseen expenses. Both of these motives are important reasons for firms to hold cash balances.

The Most Important Reasons Firms Hold Cash Balances Are the Transaction