Asked by Takerrah Young on Jul 23, 2024
Verified
Which of the following is the best definition of precautionary motive?
A) The need to hold cash to take advantage of additional investment opportunities, such as bargain purchases.
B) Much like an automated teller machine card; one use is within corporations to control access to information by employees
C) Bank makes proceeds of cheques deposited available the same day before cheques clear.
D) The need to hold cash as a safety margin to act as a financial reserve.
E) Special post office boxes set up to intercept and speed up accounts receivable payments.
Precautionary Motive
A theory explaining the demand for liquidity by individuals and firms as a safeguard against future cash needs and uncertainties.
Safety Margin
The difference between the actual value of a company's sales and the break-even sales, serving as a buffer for unexpected declines in revenue.
Financial Reserve
A portion of funds set aside by a business or organization to cover future obligations or unexpected expenses.
- Comprehend the reasons for cash management including precautionary, speculative, and transactional motives.
Verified Answer
JF
Jennifer FuentesJul 24, 2024
Final Answer :
D
Explanation :
The precautionary motive refers to holding cash to serve as a buffer or safety margin against unforeseen financial needs, thus D is the correct definition.
Learning Objectives
- Comprehend the reasons for cash management including precautionary, speculative, and transactional motives.