please dont answer if its not the direct answer to my question
my question is
1. Mention and discuss one reason each why the cash management expert wants Dream Gems & Jewellery to set cash balances to (H) and (L), thereby culminating the company to move (H Z) and (Z L) BD, respectively?
Dream Gems \& Jewellery is a new SME start-up (been in operation for four years now) that promises keen competition in the Gem and Jewellery industry. Its competitors include Yaseen Gems \& Jewellery and others who are doing well in the industry. Dream Gem \& Jewellery operations became profitable in the first two years until the managers decided to open another branch in a busy shopping centre in Manama. The opening of the new branch saw tremendous fluctuations in cash flows which overwhelmed Dream Gems & jewellery managers as they find it difficult managing the cash flows to ensure prudence in operations. For instance, on some trading days, they hold so much cash in their transaction accounts that the cash is left idle for days. On other trading days, they quickly run out of cash to pay suppliers, and they do not also have enough credit lines to fall to. Dream Gems \& Jewellery managers have become worried about the situation and forecast that if things go on without a proper cash management system put in place, they risk losing their business model. Their competitors will take advantage and crowd them out of business. In a consultative meeting held to address the situation, they invited a financial management expert, taking several decisions to nib the problem in the bud. Among the critical decisions taken includes the following: i. Dream Gems \& Jewellery should set the lower eash limit (L) and upper cash limit (H) so that any time the cash limit reaches any of those points, it will trigger the company to move (HZ) and (ZL) BD respectively. ii. The financial management expert analysed the historical net cash flows of Dream Gems \& Jewellery and computed the variance of the daily cash flows to be 160,000BD. The standard deviation is taken into account for the daily variance. iii. The cost per transaction for buying and selling marketable securities F, is assumed to be fixed, at 89 BD iv. The opportunity cost for holding cash in a year is 8.6%. The interest rate and the variance are all based on the same length of time. v. The tolerable lower cash limit (L) has been established as 2,000BD vi. The cash flow movement is explained in the graph below Cash Movement in The Miller-Orr Model
