Which of the following would be an example of the "transactions motive" for a firm holding cash balances?
A) investing "excess cash balances"
B) anticipating a downturn in the economy
C) purchase of inventory
D) take advantage of an anticipated decline in the price of raw materials

Question

Quizplus · Accepted Answer

The transactions motive for holding cash balances refers to the need for a firm to have cash on hand to conduct regular business transactions, such as purchasing inventory, paying bills, and meeting other expenses. Therefore, purchasing inventory would be an example of the transactions motive. Investing excess cash balances would be an example of the speculative motive, anticipating a downturn in the economy would be an example of the precautionary motive, and taking advantage of an anticipated decline in the price of raw materials would be an example of the speculative motive.

Which of the Following Would Be an Example of the "Transactions