Which of the following is a key practice in cash management to ensure liquidity?

• A. Monitoring credit risk and maturities.
• B. Investing in high-risk, speculative instruments.
• C. Ignoring liquidity requirements.
• D. Keeping funds in non-interest-bearing accounts.

Answer: (B)

The main idea here is to keep enough cash on hand by understanding when money is due and how secure the sources of that money are. A key practice in cash management for liquidity is monitoring credit risk and maturities. By keeping a close eye on who owes you money and when those obligations are due, you can forecast cash inflows and outflows, plan for potential shortfalls, and arrange short-term funding before a gap appears. This proactive view helps ensure you can meet obligations without having to scramble for cash or liquidate assets at inopportune times.

Investing in high-risk, speculative instruments undermines liquidity because those assets can be volatile and harder to sell quickly without taking a loss, especially when you need cash on short notice. Ignoring liquidity requirements is simply not acceptable for a liquidity-focused approach; it leaves you unprepared for short-term needs. Keeping funds in non-interest-bearing accounts can be safe and, to some extent, liquid, but it misses opportunities to earn a return and to balance risk, which is not a practical way to actively manage liquidity.

So, monitoring credit risk and maturities directly supports reliable access to cash when it’s needed, making it the best practice for liquidity in cash management.