A RATIONALIZATION OF THE PRECAUTIONARY DEMAND FOR CASH

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Issue:

Business

 

Written by:

Jessica J

 

Date added:

October 19, 2012

 

Level:

University

 

Grade:

A

 

No of pages / words:

4 / 1030

 

Was viewed:

6724 times

 

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Essay content:

This article attempt to apply the logic of rational behavior to another of the Keynesian triad of motives for holding cash: the precautionary demand for cash. And comparing it with these interpretations 3. Try to finding what extent the approach developed above deviates from the variously interpreted precautionary demand for cash...
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Concept bases: Three factors affect the optimal size of precautionary cash balances: (1) the cost of illiquidity; (2) the opportunity cost of holding precautionary cash balances; and (3) the average volume and variability of receipts and disbursements. Since cash earns no explicit return, a firm incurs an opportunity cost when it holds cash instead of alternative income-earning assets...
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