What Is the Motivation for Individuals to Hold Money

question 90

Multiple Choice

What is the motivation for individuals to hold money?

• A) to reduce risk
• B) to have liquidity
• C) to facilitate transactions
• D) all of the above

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Definitions:

CAPM (Capital Asset Pricing Model)

A model used to determine the expected return on an investment based on its level of risk, as well as the risk-free rate of return and the expected market return.

Risk Premium

The extra return expected by an investor for holding a risky asset compared to a risk-free asset, as compensation for the higher risk.

Diversifiable Risk

A type of risk that can be reduced or eliminated from a portfolio by holding a variety of investments.

Market Risk

The risk of losses in investments due to market conditions such as changes in interest rates, currency exchange rates, and stock prices.