Answer (D) is correct . A company will hold cash and marketable securities to facilitate business transactions; cash is a medium of exchange. Cash and near-cash items are also held to meet future needs, to satisfy compensating balance requirements imposed by lenders, and to provide a precautionary balance for security purposes. Cash is usually not held in an attempt to earn maximum returns on investment because cash and marketable securities are not usually the highest paying investments.
Answer (A) is incorrect because If a firm is party to a compensating balance agreement, cash must be held.
Answer (B) is incorrect because The transactional motive is one of the three Keynesian reasons for holding cash.
Answer (C) is incorrect because Meeting future needs is a valid reason to hold cash.
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