An increased partiality for liquidity within the

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benefit of the doubt which arises when the partial analysis is done. An increased partiality for liquidity within the interest rate model is as good as demand for money which increases more customers who believe interest rates are predicted to increase profits than credible go down. The current asset should be maintained at an optimal rate. This is because the current asset doesn’t earn income for the organization and the only need for a current asset is to ensure that the firm is solvent.
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The theory also emphasizes the fundamental principle of uncertainty which the businesses must first recognize and make a decision which can be translated regarding money. For example, type of loans given by commercial banks in a period is of different kinds. If the business didn’t negotiate the letter the terms of the loan, factors which affect the economy such as inflation may increase the cost of borrowing, that is the interest rate. This theory also helps in the management of financial decisions on how the business will utilize its borrowed funds in the day to day activities, for example, paying off the creditors when their debts fall due as well as purchasing of stocks on a timely basis by use of the borrowed funds.
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