The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies. The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm. To explain: The tradeoff companies face when they decide how much cash to hold in reserve. Introduction: Liquidity risk: It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

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Answer 1

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Answer 2

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Answer 3

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Answer 4

Question

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

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Answer 5

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 6

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 7

Chapter 15, Problem 1OR

Summary Introduction

Case summary:

The global treasury news discovered that the number one risk is the liquidity risk in its annual survey. The global financial crisis explained the impact of liquidity risk where there was simply not enough liquid cash for the companies.

The concept of holding large cash reserves are beneficial but they can also bring back low returns on those assets. The firms must decide how much cash they must hold to ensure the safety of a firm.

To explain: The tradeoff companies face when they decide how much cash to hold in reserve.

Introduction:

Liquidity risk:

It is the risk where the firm is facing a possibility of low cash reserves or any access to cash with the help of credit markets when it is required.

Answer 8

Expert Solution & Answer

Explanation of Solution

The tradeoff companies face when they decide how much cash to hold in reserve:

A company with a huge cash reserve is beneficial for the company. It helps to overcome the temporary fluctuations in the market. But, the possession of large cash reserves can also hinder the productivity of the company. The gap between the returns on cash and the price for holding the cash indicated by the cost of capital.

The company is effectively earning less than what the investors are expecting from the cash balance. The company with a large cash balance also cannot find an additional capital investment opportunity and they have no idea about new investment opportunities. This will be sent as a negative signal to the investors leading to reflections in the share price.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 15.1 - Why is working capital management one of the most...Ch. 15.1 - Prob. 15.2RQ Ch. 15.1 - Prob. 15.3RQ Ch. 15.2 - Prob. 15.4RQ Ch. 15.2 - Prob. 15.5RQ Ch. 15.2 - What are the benefits, costs, and risks of an...Ch. 15.2 - Prob. 15.7RQ Ch. 15.3 - Prob. 1FOP Ch. 15.3 - Prob. 15.8RQ Ch. 15.3 - Briefly describe the following techniques for...

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