Regarding a motive for maintaining liquidity, which of the following is true? Multiple Choice Firms need to hold cash as a buffer between inflowing and outflowing transactions. Firms should maintain compensating balances just in case they encounter an emergency situation. The increasing use of electronic funds transfers is increasing the transectional motive to hold cash. International firms have a transactional motive to hold cash in case favorable exchange rates become available. Firms need to hold cash for precautionary motives especially since money market accounts are not very liquid.

Regarding a motive for maintaining liquidity, which of the following is true? Multiple Choice Firms need to hold cash as a buffer between inflowing and outflowing transactions. Firms should maintain compensating balances just in case they encounter an emergency situation. The increasing use of electronic funds transfers is increasing the transectional motive to hold cash. International firms have a transactional motive to hold cash in case favorable exchange rates become available. Firms need to hold cash for precautionary motives especially since money market accounts are not very liquid.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 6QE

See similar textbooks

Similar questions

Which of the following statements are true?I. Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds. Even investors who focus on long-term securities tend to hold some money market securities because this enables them to maintain liquidity.II. Financial institutions manage their liquidity by participating in money markets. They may issue moneymarket securities when they experience cash shortages and need to boost liquidity. They can also sell holdings of money market securities to obtain cash.III. The value of a money market security represents the future value of the present cash flows generated by that security. Since money market securities represent debt, their expected cash flows are typically known.IV. The pricing of money market securities changes in response to a shift in the required rate of return by investors. The required rate of return changes in response to…
Which of the following is false? a. Baumol model helps firm to find out their desirable level of cash balance under certainty b. Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm c. A higher average daily disbursement float than average daily collection float is more desirable for a firm d. Accounts payable increase the number of days a firm’s resources are tied up in the operating cycle
Explain how each of the following factors would probably affect a firm’s target cash balance if all other factors were held constant. d. The firm arranges to use an overdraft system for its checking account.
For Discounted Cash Flows to be useful, individual investors and companies must estimate a discount rate and cash flows correctly. Select one: a. True a. False
2. Which of the following functions does not require financial markets? transporting of cash across time provision of pricing information risk reduction by investment in diversified portfolios provision of liquidity
Distinguish between the roles played by investment banks andfinancial intermediaries in exchanging cash now for claims onfuture cash.
When considering restructuring operations, MNC's will need to study cash flow sensitivity related to exchange rate changes with regard to inflows and outflows. Group of answer choices True False
Which of the following is not an economic purpose of financial instruments? a Allows transfer of fund from entities with excess funds (investors) to entities who needs funds (issuer) for business purposes (e.g. to pay for tangible assets). b Permit transfer of fund that allows sharing of inherent risk associated with the cash flows coming from tangible asset investment between the issuer and investor. c Allows the money market to be the preferred place for firms to temporarily store excess funds up until such time they are needed again by the organization. d All are economic purposes of financial instruments.
Which of the following is not a source of funds for immediate liquidity purposes? Question 9Answer a. Excess cash above regulatory reserve requirements. b. Funds borrowed on the money market. c. Proceeds from an IPO. d. Sale of liquid assets such as T-bills.
An analyst who is interested in assessing a company’s fi nancial position is most likely to focus on which fi nancial statement? C . Statement of cash fl ows.
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from Decrease of debt to asset ratio Increase of return on marketable securities None of the choices is correct Increase in the annual demand for cash
Explain how the EOQ inventory model can be modified and used to help determine the optimal sizeof a firm’s cash balances. Do you think the EOQapproach to cash management is more or less relevant today than it was in precomputer, preelectronic communications days?