All of the following are valid reasons flora business to hold cash and marketable securities except to

Firms hold cash and marketable securities for transaction needs, precautionary needs, and to satisfy compensating-balance or legal requirements—not to chase the highest possible investment return. Maximising return is an investment objective; it conflicts with the liquidity and safety motives that underlie holding cash-equivalent assets.

A. Compensating balances are a recognised motive (precautionary/liquidity).
B. Transaction motive: meet day-to-day disbursements.
C. Precautionary/speculative motive: cover unexpected or future cash needs.
D. Seeking maximum return would push the firm into less liquid, riskier assets—contrary to cash-holding motives.

3. Brigham

E. & Ehrhardt

M. Financial Management: Theory & Practice

16th ed.

Cengage

2020

Ch. 21

pp. 865-866 (motives for holding cash).

4. University of Illinois Gies College of Business

FIN 300 course pack

Module 10

p. 4 (transaction

precautionary

compensating motives).