Explain the reason for holding money and change in the interest influence on holding money.
Explanation of Solution
Money is considered as the medium of exchange for goods and services. The important reasons for people holding money are for precautionary motive, transaction motive, and the speculative motive. In the
Transaction motive: The transaction motive explains that people hold money to meet their day-to-day expenses is referred to as transaction motive.
Precautionary motive: The precautionary motive explains that people demand money as a safeguard against an uncertain future, such as medical bills, accidents, immediate payments, and so on.
Speculative motive: The speculative motive explains that people hold money to take advantage of unexpected opportunities; for example, gambling.
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