A company's management plans to adopt cash management and use the Miller-Orr model to manage the cash position. The following information is available (amounts in ISK): Fixed costs for each individual transaction with securities 50,000 Yield per day 0.035% Standard deviation for daily net cash flow 150,000 Minimum fund balance according to management decision (lower limit) 2,000,000

a) Use the Miller-Orr model to find the target cash balance and the upper limit for this company.

b) Explain how the model is used to manage the company's liquidity. What to do when the lower and upper limits are reached?