Asked by Ujjwal Dhakal on Jul 18, 2024
Verified
To use the BAT model of cash management you must know each of the following EXCEPT:
A) The opportunity cost of holding cash.
B) The fixed cost of making a securities trade to replenish cash.
C) The amount of new cash needed for transactions purposes over the relevant planning period.
D) The interest rate on marketable securities.
E) The variance of cash balances.
BAT Model
A bargaining tool or theory used in negotiation that stands for the Best Alternative To a negotiated agreement.
Marketable Securities
Financial instruments that can be quickly converted into cash at a reasonable price.
- Identify the most favorable cash level for businesses using frameworks like the BAT and Miller-Orr models.
Verified Answer
AS
aftab shaikhJul 21, 2024
Final Answer :
E
Explanation :
The variance of cash balances is not a requirement for using the Baumol-Tobin (BAT) model of cash management. The BAT model primarily focuses on optimizing the trade-off between the holding costs of cash (including opportunity costs) and the transaction costs of converting securities to cash, without directly considering the variance of cash balances.
Learning Objectives
- Identify the most favorable cash level for businesses using frameworks like the BAT and Miller-Orr models.
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