Reasons or Purposes for holding Money or Cash

There are so many purposes of holding money, unexpected occurrence makes us hold extra cash, for example, a driver is expected to hold extra cash while driving in case of shortage of petrol and passengers need to hold extra cash on a journey in case of hunger or unexpected occurrence. The Motives or a reason for holding money is further classified into three, namely:
1. The Speculative Motive
2. Transaction Motive
3. The Precautionary Motive

1. The Speculative Motive: Under this Motive, holding of money involves a loss of interest it would otherwise have earned and so it cost a lot of money to hold money.
However, when people prefer holding money to investing it, their liquidity preference is said to be high. Therefore, the demand for money is a function of liquidity preference.
2. Transaction Motive: The need to meet up with some needs and cover everyday expenditure on electricity, fuel, transportation and housekeeping is very essential for us to hold some money as this is referred to as transaction motive
3. The Precautionary Motive: The reason for holding money here is necessitated by the need or desire to hold cash in case of an expenditure arising from unforeseen contingency such as an unplanned trip, accidents or sickness

1. Can you give more examples of Speculative Motive of holding Money?
2. Can you give examples of Transaction Motive of holding Money?
3. Can you give examples of Precautionary Motive of holding Cash?

The following two tabs change content below.

3 thoughts on “Reasons or Purposes for holding Money or Cash”

  1. agree… I have a cash for preventive measures. I have something to use in case I will need it. I call it as “gas” mo ney (even if I don’t have a car). I mean it is something I will use in case of emergency.. not spending it for food or anything.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.