Cash in a broader sense includes coins, currency notes, cheques , bank drafts and also marketable securities and time deposits with banks.
Objectives of Cash Management
a) To meet payment needs of trading & business activities.
b) To minimize idle funds
c) To avoid cash crunch
d) To maintain liquidity
e) To make payments to creditors and suppliers on time.
MOTIVES for holding Cash
1) Transaction Motive — for routine business/ operating payments
2) Precautionary Motive — to provide for unexpected/ unpredictable events like strike, flood, increase in raw material cost etc.
3) Speculative Motive — to take advantage of unexpected opportunities like favourable/ reduced prices of material , discount for bulk purchases etc.
4) Compensating Motive — Minimum balance is required to be maintained with the banks for various services provided by them.
2 Comments