+1 862 207 3288 This approach is the part of portfolio demand of money that focusses on store of value function of money. According to him individuals are risk averse so, this theory is also called Risk Aversion Theory. According to this approach wealth holder keep their wealth in different forms of assets and combination of these assets are known as portfolio. This portfolio includes some safe assets and other assets that have some rate of risk. The element of risk is measured by the fluctuation in the price of that asset. Risk averse people prefer to avoid risk but at the same time they prefer to earn more return from the portfolio.
As a result, preference function is positively sloped. Each preference function represents different combination of expected wealth and element of risk. The amount of risk wealth holder can take depends on his investable funds that determine individual’s portfolio constraint.
