3FA3-19.docx

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Commerce 3FA3
Chapter 19: Cash and Liquidity Management
Speculative Motive: The need to hold cash to take advantage of additional investment
opportunities, such as bargain purchases
Precautionary motive: The need to hold cash as a safety margin to act as a financial reserve
Transaction motive: The need to hold cash to satisfy normal disbursement and collection
activities associated with a firm’s ongoing operations
Target cash balance: A firm’s desired cash level as determined by the trade-off between
carrying costs and shortage costs
Adjustment costs: The costs associated with holding too little cash. Also shortage costs.
Float: The difference between book cash and bank cash, representing the net effect of cheques
in the process of clearing
Smart card: Much like an automated teller machine card, one use is within corporations to
control access to information by employees
Lockboxes: Special post office boxes set up to intercept and speed up accounts receivable
payments
Debit card: An automated teller machine card used at the point of purchase to avoid the use of
cash
Same day value: Bank makes proceeds of cheques deposited available the same day before
cheques clear
Zero-balance account: A chequing account in which a zero balance to maintained by transfers
of funds from a master account in an amount only large enough to cover cheques presented
Dividend capture: A strategy in which an investor purchases securities to own them on the day
of record and then quickly sells them; designed to attain dividends but avoid the risk of a lengthy
hold
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