Motives for Holding Cash
Each and every firm needs cash for carrying out different activities like meeting its daily needs(e.g. paying salary, wages, due loans, purchase of raw materials, etc), maintaining a certain level of cash to face the unpredicted fluctuation in cash flows in the future, and holds cash to take advantages of price movement in the markets. Thus, there are mainly three motives for holding cash which is as follows:
- Transaction Motive
- Precautionary Motive
- Speculative Motive