The speculative or asset demand for money is the

demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...

for highly liquid financial

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...

— domestic

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

or foreign

currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...

— that is not dictated by real transactions such as

trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct excha ...

or consumption expenditure. Speculative demand arises from the perception that money is optimally part of a

portfolio Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), a collection of assets held by an institution or a private individual * Artist's portfolio, a sample of an artist's work or a c ...

of assets being held as investments.

Overview

economic theory Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...

, specifically

Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output a ...

, speculative demand is one of the determinants of demand for money (and credit), the others being

transactions demand Transactions demand, in economic theory, specifically Keynesian economics and monetary economics, is one of the determinants of the demand for money, the others being asset demand and precautionary demand. Overview The transactions demand for m ...

and

precautionary demand Precautionary demand is the demand for highly liquid financial assets — domestic money or foreign currency — arising from preparedness for emergency expenditures. Overview In economic theory, specifically Keynesian economics, precautionary dem ...

. Speculative demand is the holding of real balances for the purpose of avoiding capital loss from holding bonds or stocks. The net return on bonds is the sum of the interest payments and the capital gains (or losses) from their varying market value. A rise in interest rates causes aftermarket bond prices to fall, and that implies a capital loss from holding bonds. Accordingly, the return on bonds can be negative. Thus, people may hold money to avoid the loss from bonds. Money is thus treated as a form of asset for storing wealth. The asset demand for money is inversely related to the market interest rate. This is because at a lower interest rate, more people will expect a rise in the interest rate (and thus a fall in aftermarket bond prices). As a result, more people will hold their wealth in money rather than bonds, i.e. the speculative balances will be greater at a lower interest rate. It also depends on investors' aversion to risk, the relative demand for and the supply of other financial assets and real assets, and the change in expectations of the economic climate.

External links

''An Overview of Speculative Demand in Real Estate''
Keynesian economics Demand Financial markets Demand for money {{fin-theory-stub

Overview

See also

External links