1) Near the top of the page the word "safety" was used. How is that meant to be interpreted?

firmcash, marketable securities, accounts receivable, and inventory. In managing cash and marketable securities, the primary concern should be for safety and liquiditywith secondary attention placed on maximizing profitability. As we move to accounts receivable and inventory, a stiffer profitability test must be met. The investment level should not be a result of happenstance or historical determination but must meet the same return-on-investment criteria applied to any decision. We may need to choose between a 20 percent increase in inventory and a new plant location or a major research program. We shall examine the decision techniques that are applied to the various forms of current assets.

2)what does this mean? "The second major reason for holding cash results from the practice of holding balances to compensate a bank for services provided rather than paying directly for those services."

There are several reasons for holding cash: for transactions balances, for compensating balances for banks, and for precautionary needs. The transactions motive involves the use of cash to pay for planned corporate expenses such as supplies, payrolls, and taxes, but also can include planned acquisitions of long-term fixed assets. The second major reason for holding cash results from the practice of holding balances to compensate a bank for services provided rather than paying directly for those services.

3) Precautionary cash balances are primarily used for what?

Holding cash for precautionary motives assumes management wants cash for emergency purposes when cash inflows are less than projected. Precautionary cash balances are more likely to be important in seasonal or cyclical industries where cash inflows are more uncertain. Firms with precautionary needs usually rely on untapped lines of bank credit. For most firms, the primary motive for holding cash is the transactions motive.