Question

Firm A’s management is very conservative whereas Firm B’s is more aggressive. All else equal, which firm would probably have larger holdings of marketable securities? Explain your answer. Give an example of communication style for Firm A and Firm B and why each may be effective or ineffective

Answer 1

Conservative policy- In this policy, large amount of cash and cash equivalent are kept. This policy is made for emergency cases, there may be days when company needs immediate cash or cash equivalents that can be easily and readily converted into cash. This policy is effective when there is financial shortage in business.

Aggressive policy- This policy says to keep minimum amount of cash in the business and put all the cash and equivalents to the business for growth. This policy is good when company does not have any cash or finance problem.

In this question, Firm A will probably have large holdings of marketable securities because it is conservative firm. Marketable securities can be easily converted into cash.