ACCA FM · Chapter 5 · Question 4 of 10
Under the Miller-Orr cash management model, what action should a company take when its cash balance reaches the upper limit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Buy marketable securities so that the cash balance falls to the return point
Explanation
When the balance reaches the upper limit, excess cash is invested by buying securities, reducing the balance to the return point. When the balance falls to the lower limit, securities are sold to restore it to the return point. The return point is one third of the spread above the lower limit.
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