a. What are the two principal reasons for holding cash? Can a firm estimate it’s target cash balance by summing the cash held to satisfy each of the two reasons?
What are the two principal reasons for holding cash? Can a firm estimate it’s target cash balance by summing the cash held to satisfy each of the two reasons?
The two principal reasons for holding cash are for transactions and compensating balances. The target cash balance is not equal to the sum of the holdings for each reason because the same money can often partially satisfy both motives.
