a. Primary reasons to hold cash |
1.To meet immediate day-to-day expenses & any sudden obligations |
2.To meet any unforeseen need for hard-cash |
b. | |||
Week | Balance/Addition | Interest | |
1 | 24000 | 24000*12%*3/52= | 166.15 |
2 | 10000 | 10000*12%*2/52= | 46.15 |
3 | -24000 | -24000*12%*1/52= | -55.38 |
4 | 5000 | ||
Bal.at end of Wk.4 | 15000 | 156.92 |
c. Lead & lag strategies are practised between subsidiaries, when give & take of cash involved. |
That subsidiary which has excess cash,pays even before the due date for goods bought from the other subsidiary ,which has inadequate cash balance.This strategy is called LEADING. |
Whereas, |
when the former sells goods to the latter,it allows more time to the latter-sometimes, even to lag beyond due date--to make payment by relaxing its payment terms.This strategy is called LAGGING. |
This helps in reducing the debt burden of the weaker subsidiary. |
d. |
i. This year's tax liability is increased-- No Change--- No cash outflow/Inflow |
ii.Marketable securities are purchased with retained earnings--No Change--No cash outflow/Inflow |
iii.A sale is done based on the term 3/15,net 30--- No change --it is a credit sale |
iv.100000 of new co. share floated in the open market-- No Change-- cash is received only on subscription & purchase by the investor. |
v.Raw material is purchased on credit--- No Change-- It is a credit or on account purchase. |
a. Briefly explain two primary reasons for a firm to hold cash. (4 marks) b. A...
b. In practice, most derivative transactions end with cash settlement instead of physical delivery. Briefly explain what is meant by "cash settlement". Provide TWO (2) reasons why cash settlement is typically preferred over physical delivery (3+4-7 marks) c. Some scholars are of the opinion that futures contracts are not permissible from a Shari ah point of view, arguing that the futures contract contain excessive uncertainty or gharar. Provide TWO (2) counterarguments that have been used by other scholars who advocate...