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Dec 19, 2015 · Motives for Holding Cash. Majorly there are three motives for which the firm holds cash. Transaction Motive: The transaction motive refers to the cash required by a firm to meet the day to day needs of its business operations.
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Why do firms hold cash?
What are the motives for holding cash balances in a firm?
What are the motives for holding cash?
Why is cash held up?
- Transaction Motive: Cash balance is required to meet the day to day transactions of business. Firms hold cash for making necessary payments for goods and services they acquire.
- Precautionary Motive: Firms hold cash to meet uncertainties, emergencies, running out of cash and fluctuations in cash balances. The holding of cash on these reasons are on precaution.
- Speculative Motive: ADVERTISEMENTS: Sometimes, firm hold high cash balances over the precautionary level of cash balance to take advantage of speculative investment opportunities, to exploit discounts for prompt payments, to improve credit rating etc.
- Future Requirements: The cash balances are held to meet future payment obligations like payment of tax, payment of dividend, purchase of fixed asset, redemption of debentures, repayment of term loan, buy-back of shares etc.
Explore the key reasons behind holding cash as part of your working capital management strategy. Learn how to make the most of your financial resources.
- Transaction Motive For Holding Money
- Precautionary Motive For Holding Money
- Speculative Motive For Holding Money
Transaction motive for holding money means people hold money in the form of cash balances for transaction purposes because receipt of money and payments do not coincide. It refers to the desire or inclination of people to hold money in the form of cash balances or liquid assets for the purpose of carrying out transactions. This is because there is ...
Precautionary motive means people hold money to meet unforeseen expenses or emergencies. It is the demand for money to pay unpredictable expenses. Precautionary motive is the amount of money that people hold to protect themselves against unexpected events or expenses. It refers to the amount that money that individuals and businesses hold as a prec...
The speculative motive for holding money is the demand for money to take advantage of expected changes in non-money financial assets. It refers to the amount of money that individuals or firms hold with the intention of investing it in non-money financial assets that they believe will increase in value over time. It is the demand for money to take ...
Learn more about managing cash, and motives for holding cash, specifically, which can be crucial to running certain businesses.
Jan 1, 2013 · There are two main reasons why firms find it beneficial to hold cash: precautionary motive and repatriation taxes.2 The first motive is very simple: Firms hold cash and equivalent liquid assets because they provide the flexibility that firms need in their transactions. Two factors interact directly with this proposed explanation: uncertainty ...
Feb 23, 2024 · Transaction Motive Explained. The transaction motive refers to the desire to hold cash for everyday trading and financial transactions, encompassing business and personal needs. It is the basic reason individuals and businesses keep cash on hand, fueling the everyday movement of the economy.
