Final answer:
Cash requires strict internal controls due to its high value and appeal, increasing the risk of theft and necessitating measures for both the protection and accuracy of financial records. The reserves shown on bank balance sheets aren't always present as cash on hand due to the lending practices of banks, and the value of loans in the secondary market varies with borrower reliability and economic interest rates.
Step-by-step explanation:
Cash must be subject to strict internal controls because small quantities of cash can represent significant value and it has universal appeal. These attributes make cash a target for theft and misuse, necessitating robust tracking and management mechanisms within an organization. By contrast, the position of cash on a balance sheet or the difficulty in proving rightful ownership is less relevant to the need for internal controls, which focus more on safeguarding cash from misappropriation and ensuring accurate financial reporting.
Regarding the questions posed in the text, the money listed under assets on a bank balance sheet may not be in the bank because of the fractional reserve banking system, in which banks lend out the majority of their deposits, keeping only a fraction in reserve for daily transactions.
Regarding the purchase of loans in the secondary market, liquidity and risk assessment play a significant role. A loan is worth less if the borrower has been late on numerous payments due to higher risk. If interest rates have risen, existing loans with lower interest rates become less valuable. Conversely, loans to a firm declaring high profits or in a scenario where interest rates have fallen might be more valuable due to lower risk and comparatively higher interest earnings, respectively.