Question

Identify and explain the main motives for holding money.

Answer 1

Ans :

There are three main motives for holding money. These are ;

• Transaction demand
• Precautionary demand
• Speculative demand

Transaction demand for money :

Transaction motive for holding money helps as the medium of exchange function of money in making payments for goods and services.

Precautionary demand for money:

Precautionary motive for money means the desire of the people to hold cash balances for unforeseen contingencies.

Speculative demand for money:

Under this motive for holding money , the desire to hold resources in liquid form in order to take advantage of market movements.Here market movement means the future changes in the rate of interest and bond prices.