Management and Organizational Studies 2310A/B Chapter Notes - Chapter 19: John Maynard Keynes, Cash Management, Opportunity Cost

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

John maynard keynes wrote the general theory of employment, interest, and money, in which identified three reasons why liquidity is important: the precautionary motive, the speculative motive, the transaction motive. Speculative motive = the need to hold cash to take advantage of additional investment opportunities such bargain purchases. For most firms, reserve borrowing ability and marketable securities can be used to satisfy speculative motives. If you have a credit card with a very large credit limit you can probably take advantage of any unusual bargains that come along without carrying any cash. True to a lesser extent for precautionary motives. Precautionary motive = the need to hold cash as a safety margin to act as a financial reserve. Transaction motive = the need to hold cash to satisfy normal disbursement and collection activities associated with a firm"s ongoing operations. Cash is needed to satisfy transaction motive, need to have cash on hand to pay bills.