Don,a local building contractor,keeps an extra $5000 in his chequing account simply for any emergency which might arise.This is an example of the _____ motive for holding cash.
A)precautionary
B)availability
C)transaction
D)speculative
E)daily

Question

Quizplus · Accepted Answer

The fact that Don is keeping extra cash in his chequing account for emergency purposes suggests that he is motivated by a precautionary motive for holding cash, i.e. keeping cash on hand for unexpected future needs. The availability motive implies keeping cash on hand to take advantage of unexpected investment opportunities, and the transaction motive refers to having cash available to make day-to-day purchases or payments. The speculative and daily motives are not applicable in this context.

Don,a Local Building Contractor,keeps an Extra $5000 in His Chequing