Question

differentiate primary reasons from secondary reasons for holding cash​

Answer 1

Answer:Motives for Holding Cash

Definition: The Motives for Holding Cash is simple, the cash inflows and outflows are not well synchronized, i.e. sometimes the cash inflows are more than the cash outflows while at other times the cash outflows could be more. Hence, the cash is held by the firms to meet the certain as well as uncertain situations.

Explanation:

Reasons or Purposes for holding Money or Cash

There are so many purposes of holding money, unexpected occurrence makes us hold extra cash, for example, a driver is expected to hold extra cash while driving in case of shortage of petrol and passengers need to hold extra cash on a journey in case of hunger or unexpected occurrence. The Motives or a reason for holding money is further classified into three, namely:

1. The Speculative Motive

2. Transaction Motive

3. The Precautionary Motive

1. The Speculative Motive: Under this Motive, holding of money involves a loss of interest it would otherwise have earned and so it cost a lot of money to hold money.

However, when people prefer holding money to investing it, their liquidity preference is said to be high. Therefore, the demand for money is a function of liquidity preference.

2. Transaction Motive: The need to meet up with some needs and cover everyday expenditure on electricity, fuel, transportation and housekeeping is very essential for us to hold some money as this is referred to as transaction motive

3. The Precautionary Motive: The reason for holding money here is necessitated by the need or desire to hold cash in case of an expenditure arising from unforeseen contingency such as an unplanned trip, accidents or sickness

Answer 2

Concept

There are many reasons for which a person holds cash. There can be primary reasons also and secondary reasons also. Holding cash means requiring high liquidity.

To do

Difference between primary reasons from secondary reasons for holding cash.

Explanation

The primary reasons for holding cash are the reasons or the things on which the person spends firstly but the second reasons for holding cash are the reasons or things which not first preferable.

The example  for primary reason is paying rent, or buying crockeries, etc.

The example of secondary reason may be speculative motive means speculating in share market, etc.

One more example of holding cash is precaution measure for future.

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