A MODEL FOR OPRIMUMM CASH BALANCE

Abstract

If the cash inflow exactly equaled the cash outflow at all times, there would be no necessity to hold cash for transactions purposes. However, the two are usually not perfectly synchronized. If the inflow lags the outflow •over part of a period, the firm must carry funds to cover the deficiency period… transaction demand. So we need minimum desired cash balances.

Firms generally have minimum desired cash balances. There are various factors that influence cash holdings. As is the case with optimum inventory level, firms try to keep optimum cash balances. Accordingly, various lot-size models for the management of inventory have been applied to the management of cash. The purpose of this paper is to examine some of these models .and to develop a new optimum model to the cash management problem.