If Mr Wale took a loan for the purpose of investment; the demand for money is ______?

A. Precautionary motive
B. Transactionary and Precautionary motive
C. Speculative motive
D. Speculative and Transactionary motives

Correct Answer:

Option C – Speculative motive

Explanation

Speculative motive: A desire to hold cash in order to be poised to exploit any attractive investment opportunity requiring a cash expenditure that might arise.

• We hold cash rather than other assets whose values are falling.
• We hold on to cash to be able to buy them when their prices actually fall.
• So this is money held to play the market.
• It is money held to buy (or sell) bonds, depending on one’s expectations of future interest rates.