Final answer:
The factor NOT considered by target cash balance models is inflation, as these models typically focus on transaction costs, opportunity costs, and interest rates, but do not directly address inflation, which can lead to long-term costs.
Step-by-step explanation:
The question asks about which factor is NOT a fundamental factor ignored by the target cash balance models. The options given are inflation, transaction costs, opportunity costs, and interest rates. Target cash balance models consider factors like transaction costs, which are associated with managing cash balances, and opportunity costs, which concern the potential gains from investing cash reserves rather than holding them. Interest rates are also factored in, as they represent the potential earnings from keeping cash in interest-bearing accounts or investments.
On the other hand, many cash management models do not typically address inflation directly, making it the factor that is ignored by these models. This oversight can lead to substantial long-term costs if businesses focus too much on cash balances and not enough on real productivity gains. Furthermore, inflation can significantly impact the value of cash holdings over time, particularly in smaller economies that may experience more volatile inflation due to international movements of capital and goods.