Motives for Holding Cash


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question 1 of 3

Which term refers to how quickly and easily an asset can be converted to cash?

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1. If management holds cash to protect against a potential future demand on the business, this is an example of which of the following?

2. What is a minimum amount of cash a lender requires a business to hold as a term of a loan or line of credit?

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About This Quiz & Worksheet

This quiz/worksheet is comprised of questions on key terms and considerations related to holding cash, providing a simple way to make sure your knowledge on the subject is solid.

Quiz & Worksheet Goals

In these assessments, you'll be tested on the definitions and motivations of:

  • Converting an asset to cash
  • Holding cash to protect against potential demands
  • Minimum cash-holding requirements
  • Cash and liquidity management
  • Holding cash related to day-to-day operations

Skills Practiced

  • Defining key concepts - ensure that you can accurately match descriptions of actions related to holding cash with the appropriate terms
  • Distinguishing differences - ensure that you can differentiate between cash management and liquidity management
  • Information recall - access the knowledge you've gained regarding the form of motive behind holding cash related to day-to-day operations

Additional Learning

To learn more about this facet of business, you can read the accompanying lesson: Motives for Holding Cash. This lesson incorporates the following objectives:

  • Differentiate between speculative and precautionary motives
  • Understand the transaction motive
  • Know what compensating balances are
  • Define opportunity cost