Which statement about cash investments is TRUE?

The statement regarding cash investments that is true is that the cash amount invested varies with cash flow needs. This reflects the nature of cash investments where individuals or businesses adjust their cash holdings based on their immediate financial requirements and obligations. When cash flow is strong, there may be more liquidity available to hold cash investments, while during times of lower cash flow, they may decrease their cash holdings.

Cash investments are often used for short-term savings or in situations where liquidity is essential to cover expenses, which can vary over time. This adaptability highlights the importance of aligning cash investment levels with financial circumstances.

The other statements, while they might seem plausible, do not accurately represent the market behaviors associated with cash investments. For instance, cash investments generally do not benefit from rising markets in the same way as equities do. Instead, cash tends to lag behind in yield compared to other investment types. Rising interest rates typically lead to a more expensive borrowing environment, which might result in reduced cash holdings overall rather than a direct decrease in cash investments. Lastly, cash investments are known for their lower yield potential, particularly in comparison to equities or other investments that carry higher risk and reward.