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Four reasons to hold cash reserves

What are some of the reasons (and there are 4 primary reasons) that a firm might want to hold some cash reserves on hand? And what is the downside of holding too much cash?

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The four primary reasons are

1. Transaction motive - Here cash is kept to meet the day to day cash needs of a firm
2. Precautionary motive - Here the cash is kept as a precaution for any unforeseen situation that may arise and ...

Solution Summary

The solution explains the four reasons to hold cash reserves and their downsides