Question

Which of the following is not a motive to hold cash?

• A. Transactionary Motive
• B. Precautionary Motive
• C. Capital Investment
• D. None of the above

Answer 1

Answer: (C)

Capital Investment

The motives for holding cash is very simple. It usually happens that some time cash inflows are more then cash outflows or cash outflows are more than the cash inflows. Hence to cover up these situations, organization hold cash to meet the certain and uncertain situations.

There are basically three motives for holding cash:

a) Transaction motive- for day to day opertaions

b) Precautionary motive- to meet the unforeseen situation or contingencies

c) Speculative motive- to exploit the possible opportunities.