Liquidity preference

A theory that helps explain capital budgeting and, when applied to international operations, means that investors are willing to take less return in order to be able to shift the resources to alternative uses. Liquidity is needed in part to make near-term payments, such as paying out dividends; in part to cover unexpected contingencies, such as stockpiling materials if a strike threatens supply; and in part to be able to shift funds to even more profitable opportunities, such as purchasing materials at a discount during a temporary price depression.