MOTIVES for holding Cash

Cash  in  a  broader  sense includes coins, currency  notes, cheques ,  bank  drafts  and also  marketable  securities and  time deposits with banks.

Objectives  of  Cash  Management

a) To  meet  payment  needs  of  trading  & business  activities. 

b) To minimize  idle  funds

c) To avoid cash crunch

d) To  maintain  liquidity

e) To make  payments  to  creditors  and suppliers  on time.

MOTIVES  for  holding  Cash 

1)      Transaction  Motive  —  for  routine  business/ operating  payments

2)      Precautionary  Motive  — to provide for  unexpected/ unpredictable  events like strike, flood, increase in raw material  cost  etc.

3)      Speculative  Motive  — to take advantage  of unexpected opportunities  like  favourable/ reduced  prices  of  material , discount  for  bulk purchases etc.

4)      Compensating  Motive  —  Minimum  balance  is required  to be maintained  with  the  banks  for  various  services   provided by them.