Precautionary motive

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Precautionary motive

A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.

Precautionary Motive

The desire to keep extra money in case an unforeseen situation requires a capital outlay. For example, one may wish to save extra money to pay for medical bills in case of an accident. According to John Maynard Keynes, people keep savings accounts, as well as some stocks and commodities, with a precautionary motive in order to cover unexpected events. See also: Precautionary demand (for money).
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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.