When the interest rate is very high, newspapers and media channels are predicting that it may fall in future and hence anticipate capital gains from bond-holdings. Hence, people convert their money into bonds.
In the above statement, which motive of money is highlighted?
- Transaction Motive
- Speculative Motive
- Demonetisation Motive
- Precautionary Motive
When the interest rate is very high, newspapers and media channels are predicting that it may fall in future and hence anticipate capital gains from bond-holdings. Hence, people convert their money into bonds.
In the above statement, which motive of money is highlighted?
- Transaction Motive
- Speculative Motive
- Demonetisation Motive
- Precautionary Motive
Solution
Option 1 -> Refers to holding money for day-to-day transactions and purchases.
Option 2 -> Refers to holding or converting money based on expectations of future interest rate changes to earn capital gains.
Option 3 -> Not a recognized economic motive for holding money; relates to a policy action.
Option 4 -> Refers to holding money for unexpected emergencies or contingencies.
Hence, Speculative Motive -> The speculative motive involves holding money (or converting it to bonds) based on speculation about future interest rate movements. When interest rates are high and expected to fall, bond prices will rise (inverse relationship between interest rates and bond prices), creating capital gains opportunities. People convert money into bonds to profit from these anticipated price increases. This is a classic example of the speculative motive, where financial decisions are driven by expectations of future market conditions rather than current transaction needs or precautionary concerns. -> correct
Related questions:
2026: 23 May Shift 1
2025: 21 May Shift 1