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"Companies generally prefer to maintain some minimum cash balance.

A True
B False"

User Mariuxi
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Final answer:

The statement that companies generally prefer to maintain a minimum cash balance is true to ensure liquidity for transactions, deal with uncertainties, and prevent operational issues. Banks also keep a percentage of deposits as reserves, mandated by the Federal Reserve, to manage banking operations and stability.

Step-by-step explanation:

Companies generally prefer to maintain some minimum cash balance. The statement is true. Firms require a minimum cash balance to handle immediate transactions, face uncertainties, and safeguard against the risk of running out of cash, which might lead to severe operational issues. Similarly, banks keep a portion of deposits as reserves, which are funds not lent out or invested, thus, not generating interest payments.

The Federal Reserve mandates that banks maintain a certain percentage of depositors' money as reserves, either in their vaults or at the Federal Reserve Bank. This requirement is called the reserve requirement. It serves as a regulatory tool to manage banking operations and financial stability. Banks, such as the Safe and Secure Bank holding $2 million in reserves, might also choose to keep additional reserves over and above the required minimum to further reduce the risk of bank runs.

User IDou
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