Asked by Rachel Lopke on Jul 05, 2024
Verified
The target cash balance decreases as the interest rate rises.
Target Cash Balance
The optimal amount of cash that a company aims to hold at any given time to fulfill operational and transactional requirements.
Interest Rate
The fraction of a loan subject to interest charges for the borrower, commonly stated as an annual percentage of the outstanding loan balance.
- Comprehend the determinants affecting the desired cash reserve and the presumptions of models regarding cash movements and interest rate variations.
Verified Answer
TJ
TONYA JOHNSONJul 10, 2024
Final Answer :
True
Explanation :
As interest rates rise, the opportunity cost of holding cash increases, leading firms to reduce their target cash balances to invest in higher-yielding assets.
Learning Objectives
- Comprehend the determinants affecting the desired cash reserve and the presumptions of models regarding cash movements and interest rate variations.
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