Which of the following scenarios is an example of the transactions motive to hold cash?
A)An oil company saves abnormally high earnings as cash on its balance sheet which it will use to buy another oil company.
B)A manufacturing company holds cash to pay its suppliers for raw materials.
C)An airline keeps a reserve of cash during the winter months in case it has to pay customers a refund because bad weather results in a cancellation of flights.
D)A firm holds cash to pay its annual dividend.

Question

Quizplus · Accepted Answer

The scenario in which a manufacturing company holds cash to pay its suppliers for raw materials is an example of the transactions motive to hold cash. This motive involves holding cash for day-to-day transactions such as paying bills and expenses.

Which of the Following Scenarios Is an Example of the Transactions