Which of the following is not an objective of cash management?

Maximization of cash balance
Minimization of cash balance
Optimization of cash balance
Zero cash balance

The correct answer is D. Zero cash balance.

Cash management is the process of controlling and managing a company’s cash flow. The objectives of cash management are to:

  • Maximize the return on cash.
  • Minimize the risk of cash shortages.
  • Optimize the level of cash balances.

A zero cash balance is not an objective of cash management because it would expose the company to a high risk of cash shortages. A company needs to have a certain amount of cash on hand to meet its day-to-day operating expenses and to take advantage of unexpected opportunities.

A company can maximize the return on cash by investing it in short-term, high-yield securities. A company can minimize the risk of cash shortages by forecasting its cash needs and developing a cash management plan. A company can optimize the level of cash balances by balancing the need to have enough cash on hand to meet its obligations with the need to earn a return on its cash.