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

Question

Quizplus · Accepted Answer

A precautionary balance is held by firms to counter the uncertainty surrounding its future cash needs. This balance acts as a buffer to meet any unexpected cash requirements. Compensating balance is a minimum cash balance that a bank requires a borrower to maintain in their account, while an operating balance is the amount of cash a firm requires to meet its day-to-day expenses. Speculative balance is the amount of cash a firm holds to take advantage of investment opportunities.

The Amount of Cash a Firm Holds to Counter the Uncertainty