[amp_mcq option1=”Maximization of cash balance” option2=”Minimization of cash balance” option3=”Optimization of cash balance” option4=”Zero cash balance” correct=”option4″]
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.