Volume: 2010

Issue: 02


Levente Kovács

Article title:

New Model of Current Account Balances


Theory, Methodology, Practice





G21, G35, G00, G10, G15



Managing current account balances – defining the value of the necessary closing level – is perhaps
the most exciting daily routine activity of corporate financial managers. The relevant discussion of
this subject in Corporate Finance by Brealey and Myers, one of the most popular manuals of
today’s higher education in finances, refers to research conducted over 60 years ago. This manual
applies the Baumol model to current account balance management, starting from the costs of
simple inventory management. An enhancement of the above is the Miller-Orr model, which
restricts the volatility of the cash balances between an upper and the lower limit, and defines the
value at one-third as the return point. Our globalised world is characterized by electronic banking,
which has fundamentally changed the entire system of finances. Research done on figures of the
2000s led to results that were different than before. According to new findings, in modern
accelerated cash management the level of current account balances is not determined by the
assumed “inventory management costs” (through the development of electronic methods, they
have decreased drastically, anyhow), rather the habits of cash transaction management.

Bibtex entry

@ARTICLE { TMP201002-31,
AUTHOR = {Levente Kovács},
TITLE = {New Model of Current Account Balances}
JOURNAL = {Theory, Methodology, Practice},
VOLUME = {6},
NUMBER = {02},
PAGES = {31-35},
YEAR = {2010}


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