In the Miller-Orr cash management model, what triggers a transaction to buy marketable securities?
ACash balance reaches the Upper Control Limit
BCash balance touches the Lower Control Limit
CCash balance equals the Target Return Point
DInterest rates rise above baseline
Explanation
Core Concept: When cash touches the Lower Control Limit, the firm sells marketable securities to replenish cash back to the Target Return Point. When cash reaches the Upper Limit, the firm BUYS securities to reduce excess cash to the target point. Context/Distractors: Reaching the upper limit triggers BUYING securities; reaching the lower limit triggers SELLING securities. Exam Tip/Key Fact: Miller-Orr handles uncertain, stochastic cash flows.
Exam Relevance
- Topic: Working Capital Management
- Subtopic: Cash Management Models
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