Nor was there wanting still another
precautionary motive more related to Ahab personally.
These SMEs need to build up their own cash reserves for transaction and
precautionary motives. Cash flow depicts significant relationship in model 1 and 2, and is negative in both models implying that cash flow is used as substitute of cash in SMEs.
On the other hand, speculative and
precautionary motives are reportedly increasing demand for foreign exchange.
Consequently, this study seeks to understand whether short-term
precautionary motives of households affect their participation in and contribution to saving intermediaries.
In theory, transaction costs and
precautionary motives are the main reasons firms hold cash.
These effects and
precautionary motives may have been amplified by financial under-development, as reflected in constraints on borrowing against future income and low returns on financial assets.
A high fluctuation in cash flows and prevailing uncertainty in the market lead the firms to hold excess cash in their portfolio holdings which explains the
precautionary motives of a firm; however, Jenson (1986) associated agency cost with holding too much cash.
He places sole responsibility for China's soaring saving rate on
precautionary motives. But rising saving rates have been a feature of many developing countries including, for example, India, and they are not always associated with risk aversion.
The first two measures will directly boost consumption, and the third will indirectly help to raise consumption by allaying the widespread
precautionary motives that lead to excessively high household and business savings.
However, households will save much more because of sharp declines in housing wealth, credit constraints and
precautionary motives at a time of rising unemployment: the saving ratio will rise from 1.3 per cent in 2008 to 7.1 per cent in 2009.
If we consider two individuals, with one more risk averse than the other, we need to compare the intensities of their
precautionary motives, in addition to their measures of risk aversion, before we can determine who buys more insurance coverage in the presence of the state dependent background risk.
Bernanke noted in his speech, ''with consumer credit not readily available and
precautionary motives for saving remaining strong,'' China's domestic consumption was also restrained.
