Question

Cost of being liquid or hold idle money is ___________.

• A. consumption foregone
• B. luxury foregone
• C. interest foregone
• D. cost of not building adequate capital balance

Answer 1

Answer: (C)

interest foregone

Idle money can be loaned out to someone or invested somewhere, where the lender or investor can earn a particular rate of interest on the principal amount. So, if the liquid or idle money is not loaned out or invested then it will cost the interest which could be earned from the money if it would be loaned out or invested. Therefore, cost of being holding liquid or idle money is the interest which is foregone for keeping the money idle.