Speculative motive

Updated: Aug 20, 2021

A motive for holding money which arises from the possibility that the money value of other forms of wealth may change. Thus, suppose an individual can hold his wealth either in bonds or in money. If he expects the price of bonds to fall in the future, he will wish to switch from bonds to money, i.e. he will seil his bonds. This is because a fall in the price of bonds involves him in a loss of wealth. On the other hand, if he expects the price of bonds to rise, he will reduce his holdings of money and buy bonds. Since his desire to hold money is therefore related to his expectations of the variations in value of other assets and the way in which he can take advantage of them, this part of the individual’s money holdings are said to be determined by the speculative motive.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.