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 in case some unforeseen circumstances were to develop that cause fluctuations in the firm's cash flows. Consider the following case of San Jose Fabricators Inc.: Imagine that San Jose Fabricators Inc. is a manufacturing company. San Jose's board is looking to expand through acquisition and would like to be able to react quickly if an opportunity presents itself. San Jose's financial managers are making sure that cash is available to use as a down payment to commit to a purchase in the near future. What type of cash balance is this? Transactions O Precautionary O Compensating O Speculative