What are the examples of speculative motive?
What are the examples of speculative motive?
Speculative Motive: The firms hold cash for the speculative purposes to avail the benefit of bargain purchases that may arise in the future. For example, if the firm feels the prices of raw material are likely to fall in the future, it will hold cash and wait till the prices actually fall.
What is the difference between transaction motive and speculative motive?
The transactional motive refers to individuals holding money for the sake of buying goods and services to improve their quality of life. The speculative motive refers to the desire to hold money for the purpose of investing and growing wealth over time.
What is the meaning of precautionary motive?
Precautionary motive. A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.
What is mean by money demand for speculative motive?
The speculative or asset demand for money is the demand for highly liquid financial assets — domestic money or foreign currency — that is not dictated by real transactions such as trade or consumption expenditure.
Who introduced speculative motive?
In The General Theory, Keynes distinguishes between three motives for holding cash ‘(i) the transactions-motive, i.e. the need of cash for the current transaction of personal and business exchanges; (ii) the precautionary-motive, i.e. the desire for security as to the future cash equivalent of a certain proportion of …
Which one of the following is a speculative motive for holding cash?
There may be chances of interest rates going up in future, thereby giving higher returns on investment. In such a situation, the cash kept aside by the investor equips him to exploit such an attractive investment opportunity. This is known as speculative motive.
What is the difference between transactional precautionary and speculative?
A transactions-related reason – People need money on a regular basis to pay bills and finance their discretionary consumption; A precautionary reason, as an unexpected need, can often arise; and. A speculative reason if they expect the value of such money to increase versus other asset classes.
What is mean by the terms precautionary and speculative?
Precautionary demand – money needed for financial emergencies. Asset motive/speculative demand – when people wish to hold money rather than buy assets/bonds/risky investment.
Why is speculative demand for money interest elastic?
Speculative demand for money is inversely related to rate of interest i.e. higher the rate of interest smaller will be speculative demand for money and vice versa. Therefore curve of speculative demand for money is downward sloping to right.
What are the 3 main motives for holding money?
According to Keynes, people hold money (M) in cash for three motives: (i) Transactions motive , (ii) Precautionary motive, and (iii) Speculative motive.
How is speculative demand applied?
Speculative demand In this case, demand for holding wealth in the form of money will be higher. If interest rates are high, and people expect interest rates to fall, then there is likely to be greater demand for buying bonds and less demand for holding money. If interest rates fall, then the price of bonds will rise.
How is speculative demand for money related to interest rate?