The cash balances of most firms consist of transactions, compensating, and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them together. b. The easier a firm’s access to borrowed funds, the higher its precautionary balances will be in order to protect against sudden increases in interest rates. c. For some firms holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash. d. All companies hold the same amount of funds for a transaction balance. e. None of the statements above is correct.