6. Cash balances The importance of managing cash in hand Cash is considered an idle asset because it does not earn interest. Good financial management requires a firm to hold a limited amount of cash, but it is important for the firm to hold sufficient cash so that it can pay its current obligations, maintain its credit rating, and meet its unexpected cash needs The following statement refers to a type of cash balance. Select the best type of cash balance to complete the sentence: A cash balance is held to allow firms to take advantage of any bargain purchases that might arise. Consider the following case of Seattle Fabricators Inc.: Imagine that Seattle Fabricators Inc. is a manufacturing company. Seattle's chief financial officer is concerned about the risk of fluctuations in the latest cash forecast that was prepared for Seattle. To mitigate the risk, the CFO has increased the cash balance on hand as a type of safety net if the forecast is not met. What type of cash balance is this? Precautionary Compensating Transactions Speculative