What is meaning of speculative motive?
Definition: It is a tactic used by investors/ traders to hold cash so as to make the best use of any investment opportunity that arises later on. 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 precautionary motive of demand for money?
The precautionary demand for money is the act of holding real balances of money for use in a contingency. As receipts and payments cannot be perfectly foreseen, people hold precautionary balances to minimize the potential loss arising from a contingency.
What is speculative motive example?
For example, if a stock market crash seemed imminent, the speculative motive for demanding money would come into play; those expecting the market to crash would sell their stocks and hold the proceeds as money.
What are the 3 main motives for holding money?
According to Keynes, people hold money (M) in cash for three motives: the transactions, precautionary and speculative motives.
What is the speculative motive for holding bonds?
The speculation motive for holding money is as follows: when interest rates are lower than normal, people may expect them to increase in the future thus bringing about a decline in the value of bonds. People hold money speculating that the price of bonds will fall in the future and they can buy them cheaply.
What is speculative motive of holding inventory?
3) Speculative Motive: The Company may like to purchase and stock the inventory in the quantity which is more than needed for production and sales purpose. This may be with the intention to get advantage in term of quantity discounts connected with bulk purchasing or anticipating price rise.
What is demand for transaction and precautionary motive is interest?
Transaction demand – money needed to buy goods – this is related to income. Precautionary demand – money needed for financial emergencies. Asset motive/speculative demand – when people wish to hold money rather than buy assets/bonds/risky investment.
Is an important factor determining the precautionary demand for money?
Money Balances Held for Precautionary Reasons The factors that drive the demand for precautionary money balances are similar to those analyzed for transaction money balances. The availability of credit and the level of interest rates affect the level of precautionary money balances.
What are the three motives?
Broadly stating, there are three main motives, for which money is wanted by the people: (a) Transaction Motive; (b) Precautionary Motive; (c) Speculative Motive.
What is transactional motive?
Transactions Motive refers to the desire to hold cash balances. Holding the cash balances which are necessary for everyday transactions of a firm is known as the transaction motive.
What are the three motives for liquidity preference?
According to Keynes, the demand for liquidity is determined by three motives which are, transactional motives, precautionary motives and speculative motives.
What is the precautionary motive for holding the inventory in the Organisation?
Precautionary Motive: Inventories are also held with a motive to have a cushion against unpredicted business. There may be a sudden and unexpected spurt in demand for finished goods at times. Similarly, there may be unforeseen slump in the supply of raw materials at some time.
Which is the best definition of the precautionary motive?
Precautionary motive A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay. Copyright © 2012, Campbell R. Harvey.
When do you need means motive and opportunity?
According to a familiar adage, “means, motive, and opportunity” are necessary to prove one’s guilt in a criminal trial.
How is crime a function of means, motive, and opportunity?
If crime is a function of means, motive, and opportunity, then a comprehensive policy response—rather than narrowly targeted policies with ambiguous effects—seems to be in order.
Why is there a need for precautionary saving?
As a result, the motivation for precautionary saving has been weakened somewhat, while some researchers have found statistical evidence that the consumption rate is rising, which is supported by China’s emergence as the world’s fourth-largest importer of luxury goods.