According to Keynes, an individual could hold his wealth in two ways and that is in the cash and second is the bonds. If a person purchases the bonds or securities, he is to be confronted with the fluctuation in their prices. As a result, the bond holder may face the capital gains or capital losses. If the bond holder realizes that because of fall in prices of securities the loss incurred exceed the capital gains earned in the form of interest, he will prefer cash over the securities. Thus, whenever he is certain about fall in prices of securities, he will sell the securities and let the cash grow. He will plan to purchase the securities at that time when their prices have reached at the lowest edge. Thus, whatsoever a person keeps for such in term period to avail of the fluctuations in the prices of securities is known as speculative demand for money.
According to Keynes, the changes in the prices of bonds and securities are linked with the changes in the rate of interest. Whenever the rate of interest rises of bonds or present value of the bond decreases and vice versa. Thus because of rate of interest, the price of bonds may vary. So the bond holder may face gains or losses.
According to Keynes, the changes in the prices of bonds and securities are linked with the changes in the rate of interest. Whenever the rate of interest rises of bonds or present value of the bond decreases and vice versa. Thus because of rate of interest, the price of bonds may vary. So the bond holder may face gains or losses.
