Which one of the following statements is correct concerning a motive for maintaining liquidity?

Multiple Choice

• Firms should maintain compensating balances just in case they encounter an emergency situation.

• Firms need to hold cash as a buffer between inflowing and outflowing transactions.

• International firms have a transactional motive to hold cash in case favorable exchange rates become available.

• Firms need to hold cash for precautionary motives especially since money market accounts are not very liquid.

• The increasing use of electronic funds transfers is increasing the transactional motive to hold cash.