Which of the following is NOT a fundamental factor ignored by the target cash balance models?
A) Firms have the option to borrow short-term to meet unexpected demands for cash.
B) The costs and delays of trading securities have fallen dramatically since the advent of the Internet.
C) Many large firms habitually use all or the majority of their available cash to purchase overnight securities.
D) Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.

Question

Quizplus · Accepted Answer

The target cash balance models do not typically account for compensating balances required by banks as part of borrowing agreements, as these are specific to individual firm-bank relationships rather than general cash management strategies.

Which of the Following Is NOT a Fundamental Factor Ignored