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What is the difference between Speculation and Investment?
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Answer Posted / er. abhishek kr. sinha
Investment is a function of savings. It has the capability
of generating series of future cash-flows and gererating
employment. Buying shares and all is not an investment
activity - It is just an example of re-allocation of money.
Example of investment - investing in real estate which
generates employment and cash flows. Investment is an
extremely important variable as far as G in Keynesian
C+I+G+NX is concerned.It stimulates the multiplier.
As far as speculation is concerned; there are three prime
motives to hold money - Transactionary, Precautionary and
Speculative. Speculative motive of holding money is
basically contrasting different opportunity cosis on
different available options and then to go ahead with the
best deal according to them. Investing in shares,
commodities and all is speculative as their price keep on
changing. Investing in bonds is also speculative as the
price of bond will fall if interest rates go up and in such
case opportunity cost for holding money is high.
As far as investment being long term and all is concerned -
they are obvious and hence not a primary difference. I hope
it is clear. I wanted to avoid jargons but if one uses them
in interview - it is always a leading indicator that one
knows in and out.
Thanks,
Er. Abhishek Kr. Sinha
IBS - Hyderabad
2009-2011 batch.
| Is This Answer Correct ? | 21 Yes | 3 No |
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