When the interest rate is very high, newspapers and media channels are predicting that it may fall in future and hence anticipate capital gains from bond-holdings. Hence, people convert their money into bonds.
In the above statement, which motive of money is highlighted?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Speculative Motive
The speculative motive refers to the desire to hold or invest money based on expectations about future changes in interest rates or bond prices.
In the given statement:
-
Interest rates are currently very high.
-
People expect interest rates to fall, which would cause bond prices to rise (since bond prices and interest rates move inversely).
-
To gain from this expected capital appreciation, people start converting money into bonds.
This behavior is driven by the expectation of future profit, which is exactly what the speculative motive describes.