Theory elaborated by Keynes according to which people would prefer to hold money instead of investing it. Keynes identifies three motives for holding money: transaction, precautionary and speculative demand.

The proposition that investors characteristically prefer liquidity in investments and consequently will generally only be induced to hold longer-term securities if higher returns are offered. The theory is used to explain the term structure of interest rates. (See also Risk Premium).

The theory that lenders, other things held constant, would prefer to make short-term loans rather than long-term loans; hence, they will lend short-term funds at lower rates than long-term funds.

The hypothesis that forward rates offer a premium over expected future spot rates.