MOTIVES FOR HOLDING CASH

The term ‘cash’ with reference to cash management is used in two senses. In a narrow sense, it is broadly to cover currency and generally accepted equivalents of cash, such as cheques, drafts demand deposits in banks. The broad view of cash also includes near-cash assets, such as cash securities and time deposits in banks. The main characteristics of these is that they be readily sold and converted into cash. They serve as a reserve pool of liquidity that provides quickly when needed. They also provide a short-term investment outlet for excess cash and also useful for meeting planned outflow of funds. Here, the term cash management is employ- III the broader sense. Irrespective of the form in which it is held, a distinguishing feature of , as an asset, is that it has no earning power. If cash does not earn any return, why is it held? are four primary motives for maintaining cash balances: (j) Transaction motive; (ii) Precautionary motive; (iii) Speculative motive and (tv) Compensating motive.

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