This paper provides new evidence on how the cost of carry is linked to corporate cash policy in the presence of financial frictions. Using both time-series and firm-level data for US public and private manufacturing firms, we find a negative correlation between cash holdings and the cost of carry for financially unconstrained firms. We find no evidence of such a relation for financially constrained firms. Our results suggest that financial constraints play an important role in adjusting cash to changes in the cost of carry. We introduce a simple model in which firms differ in their cost function of external finance, where the constrained firms' highly curved cost function drives a steeper cash demand, leading to their lower cash sensitivity to the cost of carry.