What are the occasional cost of holding money?
The cost of holding money is the costs that could be realized if the money was held instead. In other words, it is an interest rate that money earns money in a selected investment. Usually it is an interest rate that is set for bonds, especially the government bond. Given the other investment possibilities that could be carried out, the costs of possession could be very different from one person or entity to another.
In order to determine the actual cost of holding money, it is first necessary to determine what the investment vehicle would be. Then it is to examine the next step of the interest rate on this investment strategy. If the annual percentage rate is the only percentage, then one percent annually would be the opportunity to hold money. Assigning a certain value would require first to know how much money was held and how long it would be held.
in economics, investing and possession of money are known as mutually exclusive electionsy. This means that both cannot be done simultaneously with the same money. If the money is invested, it cannot be held. It is possible for an individual to change his mind about the best choice for this money, but both strategies are not performed at the same time.
While most businesses and individuals may feel as if they prefer to work for them instead of being easily held, there could be valid reasons for investing. Holding money gives businesses a part of economic freedom because funds remain relatively liquid. This allows the business to take quick decisions with at least some of the means available to. Holding money also tends to cause less risk than investing. These business elections will vary from one business to another depending on the goals.
appnoliars on orthudes for possession of money are also considered explicit costs. It meansThat the costs will be lost due to lack of use by the company's own resources, in this case money. Explicit costs are in contrast to the implicit costs, the last of which are intangible costs, which are often very difficult to measure with the definitive value.
When determining whether the cost of holding money is worth it, the company must look at many different factors. For example, if a company could act on a product or purchase that would allow him to get a better return on investment than current interest rates, it would be better to hold money. Determination of the best strategy often means predict and measurement of all explicit costs.