Question

8. There are several motives for holding assets in the form of money. What are they? Provide an example of each.

Answer 1

1) Transaction motive:
Money for everyday transactions
2) Precautionary motive:
Money for unexpected payment
3) Speculative motive:
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.