Publish On: 2019-03-17
Total Post: 475
Question: Define speculative motive in cash management.
Reply On: 2013-06-22
Total Post: 8
ANS: Define speculative motive in cash management.
The speculative motive relates to the holding of cash for investing in profit-making opportunities as and when they arise. The opportunity to make profit may arise when the security prices change, the firm will hold cash, when it is expected that interest rates will rise and security prices will fall. Securities can be purchased when the interest rate is expected to fall; the firm will benefit by the subsequent fall in interest rates and increase in security prices. The firm may also speculate on materials’ prices. If it is expected that materials’ prices will fail, the will benefit by the subsequent fall in interest rates and increase in security process. The firm may also speculate on materials’ prices. If it is expected that materials’ process will fail, the firm can postpone materials’ purchasing and make purchases in future when price actually falls. Some firms may hold cash for speculative purposes. By and large, business firms do not engage in speculations. Thus, the primary motives to hold cash and marketable securities are: the transactions and the precautionary motives.
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