Question

The importance of managing cash in hand Cash is considered an idle asset because it does not earn interest. Good financial management requires a firm to hold a limited amount of cash, but it is important for the firm to hold sufficient cash so that it can pay its current obligations, maintain its credit rating, and meet its unexpected cash needs. The following statement refers to a type of cash balance. Select the best type of cash balance to complete the sentence: A cash balance is held to allow firms to take advantage of any bargain purchases that might arise. Consider the following case of Columbus Builders Inc.: Imagine that Columbus Builders Inc. is a manufacturing company. Columbus’s board is looking to expand through acquisition and would like to be able to react quickly if an opportunity presents itself. Columbus’s financial managers are making sure that cash is available to use as a down payment to commit to a purchase in the near future. What type of cash balance is this? Precautionary Speculative Compensating Transactions

Answer 1

Answer: 1. Speculative Motive/Balance

2. Speculative Balance

Step-by-step explanation:

1. A cash balance is held to allow firms to take advantage of any bargain purchases that might arise.

SPECULATIVE MOTIVE.

This is a motive of holding money that enables the holder to take advantage of good deals be it in the stock market or as the scenario portrays, in the goods market.

2. The balance that Columbus has is a Speculative Balance. Like earlier mentioned, this money is kept to ensure that good deals are taken advantage of and seeing as Columbus wants to expand in future, keeping this money on hand ensures that they can react swiftly to secure a deal should an opportunity rear it's head.

If you need any clarification please do react or comment.

Cheers.