What are the three motives for holding cash?

 The Transactions Motive: balances held for transaction purposes allow the firm to meet its cash needs that arise in the ordinary course of doing business. The Precautionary Motive: precautionary balances serve as a buffer. This motive for holding cash relates to the maintenance of balances used to satisfy possible, but as yet unknown, needs. The Speculative Motive: cash is held for speculative purposes in order to take advantage of potential profit-making situations. Construction firms that build private dwellings will, at times, accumulate cash in anticipation of a significant drop in lumber costs.