What is Opportunity Cost of Money?
If instead of holding Money in cash form, we deposit it in bank
We get interest
This is Opportunity cost of Money
Why do People hold money?
They have liquidity preference
It arises because of
Transaction motive of Money
It means the desire to hold money for cash-based transactions
Eg: A person has Rs100 with him
He has 2 options either to spend them or deposit in bank
If the person has the desire to use money for some transaction/ purchase
then he will not deposit this in bank and hold it.
Speculative Motive of Money
It refers to the desire of a trader/ investor to hold money so as to make use of it when a
good investment opportunity arises later.
Precautionary Motive of Money
It is a desire to hold money to be able effectively with unexpected events that require cash outlay.
Eg: A person can have the desire to hold money as a precautionary measure to deal with future uncertainties.
NCERT QUESTIONS
Question 3
What is transaction demand for money?
View AnswerAns
It means the desire to hold money for cash-based transactions
Eg: A person has Rs100 with him
He has 2 options either to spend them or deposit in bank
If the person has the desire to use money for some transaction/ purchase
then he will not deposit this in bank and hold it.
