Which term denotes an extra amount of money saved and used only when absolutely necessary?

• A. IPO
• B. Stock
• C. Contingency fund
• D. Capacity

Answer: (C)

A contingency fund is money set aside specifically to cover unexpected costs or cash-flow gaps, kept for emergencies rather than regular expenses. For a startup or any business, this reserve acts as a safety net, allowing you to handle surprises—like a late payment, supply disruption, or sudden repair—without dipping into operating funds or taking on debt. It should be kept separate from day-to-day cash and activated only when truly necessary, maintaining financial stability during uncertain times.

An IPO is a method for a company to raise capital by selling shares to the public, not a reserve for emergencies. Stock refers to ownership in a company, which is an investment, not a designated emergency fund. Capacity describes how much you can produce or handle, not a savings stash.