Money is required as a medium of exchange. We sell our goods and services for it and we use it to buy what we want from other people. There are three main types of Demand for money namely:-

The Transaction Demand:- Most people hold money in older to be able to transact the normal business of living from day to day.  Business have similar needs they must keep a certain amount of money on hand or in the bank to make change for customers or for petty cash purposes, to pay bills as they fall due.

The precautionary Motive:-People may hold money over and above what is required for normal transactions. There is always a possibility that something unusual or unexpected may arise. illness or accidents may bring medical bills. A job may be lost or the roof of a house or the car may need repairs.

The speculative motive:- Under certain circumstances, it is advisable to hold cash as the best way of making profit When prices of goods are expected to fall, it pays to refrain from buying them, and to sell any goods that are already owned and expected them back, later at lower price.