 In the last lecture we started portfolio theory of money demand and now in this lecture we will try to complete this portfolio theory. So, we have already discussed in portfolio theory that there are two fundamental determinants of money demand and those are income and interest rate and these two determinants are also taken in liquidity preference theory. So, up to this point both theories have common determinants for money demand, but I have already explained in the last lecture that their reasoning is different. So, reasoning is different, but the conclusion is the same. So, what is the portfolio theory, liquidity preference theory is exactly the same? No. The first difference is that reasoning is different, it is the same determinant but the reasoning is different. The second big difference is that in portfolio theory there are not just these two determinants, but there are other determinants as well. In liquidity preference theory there are not just two determinants, one is interest rate and one is real income. In portfolio theory, we have already discussed these two in the last class. Now, there are some other determinants left that were not in liquidity preference. And what are those? They are other determinants of money demand. We will call them other determinants of money demand. And these are only in portfolio theory. These were not in the last theories. What are these? They are wealth, risk, liquidity and payment technology. And here this also becomes clear in your mind that wealth, I am writing it again when I have written it before. So, I told you earlier that wealth and income are one meaning. Now, we will write wealth which is not related to income. That is, the income that has not increased, like someone has got wealth from their parents, it is not their earned wealth. This is how wealth is understood, that is, wealth other than income. So, what is the connection with this company demand? Look, the thing is that wealth is in any form. You earn it and accumulate it, or you get it from your parents or from someone else. Wealth means in this sense, wealth increases in the day of asset. So, if wealth is not related to income, then the demand for money will increase. Yes, there will be a difference in magnitude. The wealth which is related to income, it comes through income. So, you get more money from income. And if the wealth is more in the form of wealth, then the money will be more. But proportion wise, it is less. Why? Because you get this asset in the form of property, which you did not earn yourself. In that, it can be a house, it can be a land, it can be a car, it can be a factory. So, their role is more in this kind of wealth. So, its money demand will have a positive effect. But quantitatively, this effect will be less. Second, risk. Now, when we talk about risk, then here first, we have to understand whether there is a risk on money or not. Because we have read in the portfolio theory that risk plays a role in any asset's demand. So, the question will be whether money is a risky asset. So, remember, if we look at money in the nominal form, then it is not risky. How? The note that is written today is 1000 rupees. It is being read for 5 years, and it will be written for 1000 rupees. Money is not risky in the nominal form. But money is risky in the real form. Why? Because after 5 years, the value of that 1000 rupees will not be there today. If it is written, it will be 1000 rupees. The value will be less. So, I will discuss the risk in both the ways, in the nominal form and in the real form. So, when we say that we talk about nominal, then money is risk-free. So, if money is risk-free and other assets are risky, then this means that the relative risk of money is less compared to others. Money is risk-free and other risks of money are less. So, the relative risk of which is less, people hold it more. So, from the risk side, because the relative risk of money is less, people increase the demand of money. But if you look at it from the real side, then it will turn upside down. And the real side's real meaning is that if you have a lot of inflation in your economy, that is why your nominal money will not have a real value. So, this means that the real value of your money is risky in the sense of money. So, if you look at the risk of other assets, then the risk that is given, if inflation increases in your economy, then the risk of money will increase in the sense of real value. Then people will convert their money into other assets. People will reduce the demand of money. Why? Because according to the portfolio theory, the relative risk of which is increased, the demand of money is less. So, this is why we are applying the portfolio theory on the demand of money. One more important point is liquidity and demand for money. And we have discussed liquidity in great detail in the last lectures. You know that money is the most liquid asset. The assets that you can take, the most liquid asset is money. So, if we talk about the liquidity of other assets, remember one thing, money is already liquid. We cannot talk about increasing its liquidity. Because money, already money is the most liquid asset. So, when I say that liquidity has increased, it does not mean that it has increased above money. The rest of the assets have also increased in the portfolio. So, if we take this case, that the liquidity of the rest of the assets has increased. So, increasing the liquidity of the rest of the assets means that the relative liquidity of the money has decreased. First, the rest of the assets were less liquid. The money was the only champion. So, the money was liquid in both relative funds. Now the remaining assets have also started to become liquid, So, the relative liquidity of the money has become less now. So, if the relative liquidity of the money is down, then the asset to which the relative liquidity has been decreased will help to decrease its demand. So, if the relative liquidity of the money decreases is determined by increasing the liquidity of the remaining assets, then the money demand of the assetswalks will also reduce. Payment technology is a important determinant according to the portfolio theory that you know that over time payment mode or payment methods are getting advanced, payment technology is getting advanced We have already discussed this in a lecture in great detail, that the money in the advanced form, the electronic money We talked about that, when we started from the Berter system The payment technology of money is getting improved, like the payment from the credit card So remember that the technology that gets improved, you need to hold the money as much as you need to If you have a credit card in your pocket, then you don't need to hold money or put money in your pocket That is not the case, why do you buy from the credit card? If the credit card is acceptable at your shopping centre So there is no problem, this means that if the payment technology gets improved, like the electronic money And I am giving you an example of the credit card, then your money demand will be reduced That is why you don't need to hold the money Thank you