ACCA · Question 5 · Working Capital Management

Section A

CryptoFlow is a digital asset exchange that needs to manage its fiat currency reserves. It requires $2,000,000 in fiat cash steadily over the next year. The cost of converting digital assets to fiat (transaction cost) is $50 per conversion. The opportunity cost of holding fiat cash is 5% per annum.

Using the Baumol model, what is the optimum amount of fiat cash CryptoFlow should transfer in each transaction? (Round to the nearest whole number).