Holding cash for which of the following reasons is an example of transactions demand?
A)Purchase of inputs in response to an abrupt price drop
B)Acquisition of raw material for an emergency demand
C)Immediately producing a new batch of product to replace goods damaged by a flood
D)Payments to tax authorities

Question

Quizplus · Accepted Answer

Payments to tax authorities are a routine transaction that requires cash on hand. This is an example of transactions demand as it is necessary for conducting day-to-day business operations. Choices A, B, and C are examples of precautionary demand, where cash is held for unexpected events or emergencies.

Holding Cash for Which of the Following Reasons Is an Example