Financial liquidity and business flexibility have become increasingly common topics in IELTS Writing Task 2 examinations, particularly in questions focusing on economics and business management. Based on analysis of past papers and trending topics, this theme has appeared in approximately 15% of business-related questions since 2019, with a projected increase in frequency for upcoming tests.
How interest rates impact stock market trends is closely related to the concept of financial liquidity, as both factors significantly influence business operations and market stability.
Some people believe that companies should maintain high levels of cash reserves for financial flexibility, while others argue this money could be better invested in business growth. Discuss both views and give your opinion.
Analysis of the Question
This question requires candidates to:
- Examine two contrasting perspectives on corporate cash management
- Evaluate the benefits and drawbacks of each approach
- Present and justify their own viewpoint
- Support arguments with relevant examples
Sample Essay 1 (Band 8.5)
In today’s volatile business environment, the management of cash reserves has become a critical decision for companies. While some advocate for maintaining substantial liquid assets to ensure financial flexibility, others contend that these funds should be reinvested for growth. In my opinion, while both approaches have merit, maintaining a balanced approach with moderate cash reserves is most beneficial.
Those who support high cash reserves argue that this provides crucial financial stability and operational flexibility. During economic downturns or unexpected market disruptions, companies with substantial cash holdings can better weather challenges and seize opportunities. For instance, during the 2020 global pandemic, technology companies like Apple and Microsoft with significant cash reserves were able to maintain operations and even acquire struggling competitors at favorable valuations.
Role of central banks in financial crisis management has demonstrated the importance of maintaining adequate liquidity buffers, especially during periods of market stress.
Conversely, proponents of aggressive reinvestment argue that excess cash represents missed opportunities for growth and innovation. They contend that funds sitting idle in bank accounts could be used for research and development, market expansion, or technological advancement. Tesla’s strategy of continually reinvesting in manufacturing capabilities and technology development exemplifies this approach, having led to significant market leadership in electric vehicles.
However, I believe the optimal strategy lies in maintaining balanced cash reserves while pursuing strategic investments. Companies should maintain sufficient liquidity to cover operational needs and potential contingencies while investing excess funds in growth initiatives. This approach, similar to how importance of investing in mutual funds balances risk and return, allows organizations to remain both financially stable and competitive.
In conclusion, while both perspectives on cash management have valid arguments, a balanced approach that combines adequate liquidity with strategic investment provides the most sustainable path forward for businesses in today’s dynamic environment.
Sample Essay 2 (Band 6.5)
In the business world today, companies must decide how to manage their money. Some people think keeping lots of cash is good, while others say using it for growth is better. I will discuss both sides and give my opinion.
Having high cash reserves has some benefits. First, it helps companies feel safe when problems happen. For example, if sales go down, they can still pay workers and bills. Second, they can buy things quickly when good chances come. Many big companies like Google keep lots of money ready to use.
But other people think keeping too much cash is not smart. They say companies should use money to grow bigger and better. This means buying new machines, hiring more workers, or making new products. Some successful companies like Amazon spent lots of money to grow their business and became very big.
Impact of global trade agreements on financial markets shows how important it is for businesses to be ready for changes in the economy.
I think companies should keep some cash but also spend on growth. Having no cash is dangerous, but having too much is also not good. Companies should find a middle way that works for them.
In conclusion, both keeping cash and using it for growth are important. Companies need to be careful and smart about how they use their money.
Analysis of Band Scores
Band 8.5 Essay Analysis:
- Sophisticated vocabulary and complex structures
- Clear organization with cohesive devices
- Well-developed arguments with specific examples
- Balanced discussion with clear personal stance
- Excellent paragraph transitions
- Academic tone throughout
Band 6.5 Essay Analysis:
- Simple but clear vocabulary
- Basic sentence structures
- Limited use of complex expressions
- Some repetition in ideas
- Basic examples provided
- Less sophisticated linking words
Key Vocabulary
- Liquidity (n) /lɪˈkwɪdəti/ – The ability to convert assets into cash quickly
- Contingencies (n) /kənˈtɪndʒənsis/ – Possible future events or circumstances
- Volatility (n) /ˌvɒləˈtɪləti/ – Tendency to change rapidly and unpredictably
- Operational flexibility (n) /ˌɒpəˈreɪʃənl ˈfleksəbɪləti/ – Ability to adapt to changing circumstances
- Cash reserves (n) /kæʃ rɪˈzɜːvz/ – Money set aside for future use
- Strategic investment (n) /strəˈtiːdʒɪk ɪnˈvestmənt/ – Planned allocation of resources
- Market disruption (n) /ˈmɑːkɪt dɪsˈrʌpʃn/ – Significant change in market conditions
- Financial stability (n) /faɪˈnænʃl stəˈbɪləti/ – Consistent financial performance
For practice, try writing your own essay on this topic and share it in the comments section. Consider also exploring related topics such as the impact of digital currencies on business liquidity or the role of government regulations in corporate cash management.