The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a(n):
A)speculative balance.
B)compensating balance.
C)operating balance.
D)precautionary balance.
E)transactions balance.

Question

Quizplus · Accepted Answer

The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a precautionary balance. This balance is held to deal with unexpected events such as a sudden drop in sales, inventory shortages, or natural disasters. Choice A, B, C, and E are all types of cash balances but do not specifically refer to the balance held for uncertainty purposes.

The Amount of Cash a Firm Holds to Counter the Uncertainty