Asked by Destiny Gutierrez on Jul 22, 2024
Verified
Which of the following is correct about the various cash management models?
A) BAT assumes unsteady, uncertain cash outflows.
B) BAT is generally considered one of the most complex cash management models in practice.
C) The Miller-Orr model assumes the transaction cost of trading securities varies on a daily basis.
D) The Miller-Orr model assumes cash flows fluctuate randomly from day to day.
E) In the Miller-Orr model, cash flows can fluctuate up but not down.
Miller-Orr Model
A financial model used to manage cash flow and determine the optimal level of cash reserves for a firm.
- Ascertain the ideal cash reserve for companies employing methodologies such as the BAT and Miller-Orr models.
Verified Answer
IM
IsaBelle McAlpineJul 25, 2024
Final Answer :
D
Explanation :
The Miller-Orr model is designed to handle cash management under uncertainty, assuming that cash flows can fluctuate randomly from day to day. This model sets upper and lower limits for cash balances and suggests transactions when these thresholds are crossed, making it suitable for dealing with unpredictable cash flows.
Learning Objectives
- Ascertain the ideal cash reserve for companies employing methodologies such as the BAT and Miller-Orr models.
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