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Question 10.RQ.3: What are the reasons for holding inventories? Are these reas...

What are the reasons for holding inventories? Are these reasons different from the reasons for holding cash?

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Inventories are held
● to meet customer demand,
● to avoid the problem of running out of inventories and
● to take advantage of profitable opportunities (for example, buying a product that is
expected to rise steeply in price in the future).
The first reason may be described as transactionary, the second precautionary and the third speculative. They are, in essence, the same reasons why a business holds cash.

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